GBP/USD may get a jolt of volatility this week with top tier economic updates coming soon from the U.S. and the U.K.
Will we see a break recent consolidation and a fresh momentum move?
GBP/USD Bearish Break?
Last week, my good friend Big Pippin pointed out a potential triangle formation in the works on the one hour chart, suggesting the potential for a bearish break in GBP/USD possibly coming very soon.
Looking at the four hour chart today, it looks like we got one more bounce since his post, and now it looks like the 1.3900 support area could be finally breaking. Will we finally see technical traders take the pair lower?
Possibly, but we have to keep in mind that there is top tier economic data ahead for the U.S. dollar, most notably the latest consumer price index data. Inflation has been a topic and market driver this year, and if current expectations of a potential reversal of the high rates of price growth we’ve seen plays out, the Greenback could take a bearish turn this week.
We’ve also got the latest quarterly GDP update from the U.K. coming Aug. 12 to potentially shake up the British pound. Since this is a lagging indicator of fundamental health, this isn’t likely to be a huge market mover with out a far off surprise read.
Expectations are for at 4.8% rebound in Q2, so anything no where near that would likely spark a reaction from forex traders.
We’ll be watching these two events this week for a potential setup on GBP/USD. If the U.S. CPI comes in above the 0.5% read for July, that could be enough to spark traders to price in earlier rate hike/tapering expectations into the U.S. dollar.
In that scenario, the downside break in GBP/USD above has higher odds of success, with a potential to move down to the 1.3700 handle given its weekly ATR of around 180 pips combined with a bearish U.K. GDP read.
And vice versa, if U.S. inflation comes in below the 0.5% read, that would likely draw in USD sellers who may be reducing their rate hike bets and/or take profits from the small USD rally since the start of August. The odds of the pair moving back to 1.4000 this week rise dramatically if U.K. GDP surprises with a strong positive read.
What do you guys think? Will the bearish price action draw in more bears? Will the latest inflation data be a major catalyst for the pair?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
