The market environment has changed into one with a strong US Dollar that is overcoming most other currencies – including this one, and an increasingly risk-off environment which can be seen in stalled and slowly declining stock markets. Additionally, there are big news events ahead scheduled for both currencies within the GBP/USD currency pair, that might produce a stronger, longer-lasting trend than any we have seen lately: central bank meetings today and tomorrow. We also had a release earlier today of crucial CPI (inflation) data for the British Pound which included some minor surprises. While these events are ongoing, we can probably expect volatility, but if they do end up driving direction decisively, the correct direction might not be immediately obvious.
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The GBP/USD currency pair is certainly going to be one of the pairs in the focus of Forex analysts today and for the rest of this week, despite the dominance of Forex action by the Japanese Yen over the past few days, with the British Pound acting as a relatively strong currency.
GBP/USD Fundamental Analysis
The US Dollar has a mildly bullish fundamental backdrop going into the Fed decision, but market conviction is fragile; the British Pound is supported by resilient UK activity and a relatively hawkish rates outlook, though energy-driven inflation and growth risks keep the outlook balanced. This balance just got a bit stronger, with net dovish UK inflation data which included components which came in a little lower than expected, which will ease some of the hiking pressure on the Bank of England.
Headline CPI slowed to 2.6% in June from 2.8% in May—below expectations—and services inflation edged down to 3.6% from 3.7%. That combination supports the view that underlying domestic price pressure is gradually easing, reducing the immediate need for the BoE to tighten policy.
Sentiment is much more bullish on the US Dollar than the British Pound, because markets are pricing in an approximately 95% chance of a rate hike by the Fed later today, while the Bank of England is not seen as being on such an urgent or decisive path – no rate hike is expected by the Bank of England at its policy meeting which will be held tomorrow (Thursday).
GBP/USD Technical Analysis
When we zoom out to a daily or longer-term chart, the price action looks consolidative: the price has been making a range between approximately 1.3650 and 1.3100 for more than the past year. Drilling down, however, shows that the price action has fluctuated between several short-term trends, but they are quite well-defined when they happen and are often contained within a symmetrical price channel of some reliability.
We might be close to a new short-term trend change. A look at the H1 price chart below covering recent days shows a succession of price channels, with the current one being a bearish channel holding since 9th September – and all the channels are contained within the several linear regression analysis studies within the price chart. This suggests we are currently in a bearish trend, and the price is more likely to fall than rise.
However, price action is throwing doubt on this bearish trend, as we are seeing the price making a triple bottom at the low at around $1.3465. However, we re also seeing a double bottom at the resistance level nearby at 1.3495 which is very confluent with the big round number at 1.3500, and the second top was made just when the UK inflation data was released, so this price action might have extra weight.
It looks like the price will either break below the five-week low at 1.3465 or above the double top and 1.3500. Such a bullish breakout above 1.3500 will also be a bullish breakout from the bearish descending linear regression analysis which presents a price channel, and that would signal another short-term trend change and put bulls in the driving seat for at least a while.
Right now, the price is moving lower and looking likely to test the lows at 1.3465.
GBP/USD H1 Price Chart – Short-Term Price Channels
My Take on the GBP/USD
Although the price action seems to have arrived at a potentially pivotal point following the release of UK inflation data, as we still await policy meetings over the next 30 hours or so at both central banks concerning this pair, I think the price is likely to remain within the range between 1.3465 and 1.3500 until the Fed release later today.
This suggests that the best opportunities here are likely to be scalps long from a bullish bounce at or near 1.3465 or a bearish rejection at or near 1.3500. There might well be more potential to the downside than to the upside.
A sustained breakout above 1.3500 will be a bullish sign, while a sustained breakdown below 1.3465 will see a fresh multi-month low price and would be a bearish sign.
Review, Support & Resistance Levels
My previous GBP/USD free signal on 15th September could have produced a profitable short trade from 1.3493, which contained the high of the London and New York sessions that day.
Risk 0.75%.
Trades may only be entered prior to 5pm London time today.
Long Trade Ideas
Go long following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.3435, $ 1.3406, or $1.3389.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to run.
Short Trade Idea
Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.3495, $1.3514, or $1.3533.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to run.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing further scheduled today concerning the British Pound. Regarding the US Dollar, the Fed will be holding its policy meeting and announcing data releases at 7pm London time.
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