GBP/USD Offers an Attractive Entry for Bears

The currency markets have been quiet in the week thus far and this may continue ahead of the two-day Jackson Hole Symposium which starts tomorrow.

Fed Chair Powell will discuss inflation and monetary policy on Thursday while Bank of England Governor Andrew Bailey will speak on Friday.

In the past, the market reaction towards events at the Jackson Hole Symposium has been inconsistent. There is some speculation that Fed Chair Powell will announce a change in the way the Fed views its inflation target which could move the markets.

Specifically, Powell may say that policymakers are willing to let inflation run above their 2% target after a lengthy period where it has run below targets.

If the Fed adopts this view, it would be considered dovish and bearish for the dollar. Similarly, BoE Governor is expected to be dovish as well.

There were talks a few months ago about negative rates, and this issue may be discussed on Friday. There are some concerns about the economic damage the unwinding of the Job Retention Scheme may have. This puts pressure on the BoE to keep monetary policy accommodative.

Technical Analysis

There are two reasons GBP/USD could move lower from here.

Investors may stay on the sidelines ahead of Powell and Bailey’s speech. With GBP/USD last seen trading at a notable resistance level, the odds don’t favor an upside break ahead of the upcoming speeches.

Therefore, there may be some potential for short-term bears for a move back towards recent range support at 1.3060.

From a broader perspective, GBP/USD failed to cross above important resistance at 1.3262 twice last week. Both times accompanied a sharp turn lower.

This level carries significance on a monthly chart where the pair has not closed above it in over two years.

Few traders will want to bet on a bearish outcome of Powell’s speech but with the current technical levels in play, the risk to reward certainly appears to be favorable in front-running a break below 1.3000 in the event he doesn’t deliver what the markets are expecting.

Bottom Line

• Volatility has slowed in the early week as investors await the outcome of the Jackson Hole Symposium.
• GBP/USD faces resistance at 1.3165 ahead of the North American open. The same level capped gains in the exchange rate in late July and early August.

For a look at all of today’s economic events, check out our economic calendar.