GBP/USD fell sharply lower on Tuesday after Fed member speeches were less dovish than expected. The pair is testing support from the 100 moving average on a 4-hour chart in early European trading on Wednesday.
Once again important overhead resistance in GBP/USD has triggered a turn lower. The pair is down about 100 pips from yesterday’s high after it failed to sustain a break above 1.2750.
This overhead resistance level has been a major hurdle for the pair ever since it crossed below it on May 17th. The current downturn carries some momentum with it, as a bearish engulfing candle has printed on a daily chart.
The catalyst for the turn lower came from remarks from the Fed. The markets have been expecting the central bank to cut next month, and many considered the potential of a 50 basis point cut next month.
Fed members Powell and Bullard set the record straight, indicating that the chance of such a cut was not likely to happen anytime soon. Bullard still holds the view that the Fed should cut 25 basis points. Powell’s stance was mostly unchanged from last weeks Fed meeting. He reaffirmed that the bank will act as necessary to sustain the recovery.
I expect that the 100 MA mentioned above can trigger a bounce in GBP/USD. However, the daily bearish engulfing candle is a concern and suggests that any potential rallies might be limited.
If the pair breaks lower, I see further support at a horizontal level residing at 1.2655. ON an hourly chart, the 200 MA is within close proximity of the level to create a confluence.
To the upside, I see some resistance around 1.2695 with further resistance coming in at 1.2715. I suspect that some form of catalyst will be required for the pair to recover much higher than that, at least in the session ahead.
Note also the broken trendline on an hourly chart. The trendline extends back to a low posted on the 18th of May. It further confirms the recent change of the near-term trend.
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.