GBP/USD popped higher during the North American session on Wednesday and is seen holding near the 1.3200 price point.
GBP/USD pushed higher on Wednesday on the back of a weak dollar but the upward momentum has subsided since then. The pair has been consolidating near the 1.3200 handle although volatility is expected to pick up later today as Fed Chair Powell is scheduled to speak.
Powell will speak at the Jackson Hole Symposium which will be held online. Bank of England Governor Andrew Bailey will speak on Friday although the market reaction is likely to be stronger from Powell’s words.
Powell will reveal how the Fed expects to conduct monetary policy moving forward. Investors will be especially paying attention to how a rise in inflation will be handled as the earlier easing measures should cause upward price pressure.
If Powell signals that the Fed is comfortable with inflation climbing above 2%, it would be bearish for the dollar as it indicates that rates will remain low for longer.
In such a scenario, there will likely be a continuation in the trends seen since mid-March – A rise in equities and precious metals, and a further decline in the dollar.
GBP/USD is near a notable resistance from a horizontal level at 1.3262. This same level held the pair lower in December and March last year.
On a monthly chart, the pair has not closed above it in over two years. Last week, sellers showed that they are ready to defend the level as two rally attempts were met with strong selling pressure once the price point was reached.
If sellers continue to block upward attempts, a potential first downside target falls at 1.3000 as the level has acted as support in the range that has played out since late July.
Yesterday’s break above 1.3160 resistance signals short-term bullish momentum. The same level is seen as support in the session ahead. A break below could shift the near-term momentum back to the downside.
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Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.