GBPUSD has formed lower highs connected by a trend line that’s been holding since the third week of July. Price is testing this resistance zone and could be due to resume its selloff soon.
The 100 SMA is below the 200 SMA to indicate that the path of least resistance is to the downside or that the selloff is more likely to gain traction than to reverse. The 200 SMA dynamic inflection point also coincides with the trend line resistance to add to its strength as a ceiling.
In this case, GBPUSD could fall back to the lows around 1.2675 or lower. Stochastic seems to be on the move down as well and has room to head lower before reaching the oversold area to reflect exhaustion among sellers. RSI is also crawling lower, so price could follow suit as bearish momentum stays in play.
A break above the trend line, on the other hand, could signal that a reversal is in the works.
GBPUSD could take cues from top-tier US and UK data this week. The US has its PPI and CPI figures up for release, and softer inflation figures could bolster the case for a September rate cut. Meanwhile, UK jobs data could reflect subdued wage growth while the CPI figures could indicate a rebound in inflation.
Upbeat UK economic figures could reassure pound traders that the BOE is likely to keep borrowing costs on hold in their next meeting, as the previous rate cut decision was a narrow vote. On the other hand, weak UK data could reinforce views of another easing move, potentially sustaining GBPUSD’s downtrend.
US retail sales and consumer confidence data are also lined up towards the end of the week and might also influence overall market sentiment, as previous jobs releases spurred risk-on and risk-off flows.
