GBP/USD Daily Forecast – British Pound Tries To Bounce From 6-Month Low

Powell Testifies – Be Ready for Volatility

Fed Chair Powell will testify to the Senate Banking Committee over the next two days and it is very likely that the markets will react in a volatile manner.

There is a lot that he could say that would cause the markets to reprice the dollar. There are two things that I will be playing close attention to.

First is monetary policy expectations for the meeting later this month. The markets are still fully pricing in a cut. If Powell suggests otherwise, there could be a sharp swing in the dollar. This is probably the greatest risk to volatility, however, the Fed is known to try and not stir volatility. For this reason alone, I don’t think it will happen. Nevertheless, it shouldn’t be ruled out as an option.

Second, I’m looking for more general forward guidance on the intended path of easing. The theme that has been driving the dollar recovery is a mismatch between market expectations of policy easing versus the Bank’s intentions. Powell’s testimony should shed some light on how close these two have converged over the last two weeks.

UK GDP Reported In Line with Expectations

The Office for National Statistics reported a rise of 0.3% in GDP for May, which was inline with expectations. Manufacturing figures came in softer with a rise of 1.4% in production for the month before last. Analysts had been looking for a gain of 2.2%. There was also a downward revision to -4.2% in the prior reading from the originally reported -3.9%.

I think GBP/USD is gaining on a weaker dollar in early trading today rather than the economic data released. The greenback seems to be bid across the board into the European open.

Some pairs like AUD/USD and NZD/USD are still slightly in the red for the day, but reversal candlestick patterns on their respective 4-hour charts show strong buying pressure.

Technical Analysis

GBP/USD has been extraordinarily weak in the dollar recovery that has taken place since June 24th. While the pair looks firm in the early day, I suspect that it might struggle to make real gains, at least ahead of Powell’s testimony.

On a 4-hour chart, the pair has posted a bullish engulfing candle. This signals that the near-term trend likely turned bullish. There is significant overhead resistance. First, 1.2486 is a level that held the pair higher on a daily basis in 2018. It also contained a spike lower post-NFP last week.

Above it, further resistance is found at the psychological 1.2500 handle. On my chart, i have it marked at 1.2506 which reflects the June low. There is confluence there from the upper line of a declining trend channel.

To the downside, I see support at 1.2450 which seems to have held the pair higher over the last 24 hours or so.

Bottom Line

• GBP/USD is catching a bid as the dollar is broadly under pressure in early trading on Wednesday
• Powell’s testimony stands to trigger a volatile reaction. Ultimately, his words will drive the near-term direction in the dollar pairs.