GBP/USD DailyForecast – Sterling Pulls Back From Resistance

Is GBP/USD Trying to Carve Out a Bottom?

The rally in the British pound last week was nothing short of impressive. It was also very uncharacteristic. This currency persistently underperformed the major currencies last month. Not only that, it was weaker than a majority of the currencies worldwide July.

In that context, last week’s recovery was quite impressive. Even more so considering that the dollar gained and the drop in EUR/USD brought the pair not all that far from its yearly low.

GBP/USD has met some sellers today after a failed attempt to cross above its 200 moving average on a 4-hour chart.

While the pair has been able to gain despite a strong dollar, the week ahead has a few catalysts that suggest the greenback will drive the majors. There are speeches from several Fed members, including Fed chair Powell. The markets will be looking for confirmation of a rate cut in September which they have already fully priced in.

In addition to the speeches, the minutes from the latest Fed meeting will be released on Thursday. In the press conference that followed the July meeting, Powell tried to paint the picture that the Fed could go in any direction from here on. Essentially, they did not have a distinct easing bias which is what the markets had positioned for. It seems very possible that individual members had a more directional stance, not just a neutral one, and the minutes should shed more light.

Technical Analysis

GBP/USD snapped a 4-week losing streak last week and posted a bullish engulfing candle on a weekly chart in the process. This opens up the potential for a further recovery.

While the candlestick print in GBP/USD might not be all that impressive, I think it is important to take note of sterling’s price action across the majors. Take EUR/GBP for example, this pair tested 2016 highs last week and dropped sharply lower from there, also resulting in a bearish engulfing candle.

Considering that GBP is showing some sort of a weekly reversal pattern against all of the majors, there is upside potential, even though GBP/USD has been in a strong downtrend.

For the session ahead, resistance remains at the 200 MA on a 4-hour chart. I see support at the 100 MA on the same chart, this comes in around 1.2100 where a rising trendline creates a confluence of support.

Bottom Line

• GBP/USD is showing signs of reversing after a sharp earlier drop.
• Resistance for the session ahead is at 1.2150 where the 4H 200 MA has held rallies thus far. Support is found at a confluence of the 100 MA and a rising trendline around 1.2100.