Forex Watchlist: GBP/USD at Channel Bottom ahead of U.S. Core PCE Price Index


 Who’s up for a potential countertrend play?

I’m looking at GBP/USD testing the bottom of its descending channel prior to the release of the U.S. April core PCE price index.

Better keep your eyes on these levels if you’re going for either a bounce or a break.

GBP/USD: 15-min

Cable has formed lower highs and lower lows connected by a falling channel visible on its short-term time frames.

The pair is currently hanging out at the bottom of the channel, still deciding whether to pull back up or to go for a steeper decline.

Technical indicators seem to be suggesting that support is more likely to break than to hold. The 100 SMA is below the 200 SMA to confirm the presence of bearish vibes while Stochastic is heading south.

If that happens, GBP/USD could tumble to the next floor at S1 (1.2320) or all the way down to S2 (1.2280).

However, the oscillator is already dipping in the oversold region to signal exhaustion among sellers. Turning higher and moving north would signal that buyers are regaining the upper hand.

Market players could take cues from how the U.S. core PCE price index turns out for April, as this report is said to be the Fed’s preferred inflation measure.

Now the FOMC refrained from dropping strong hints about pausing from interest rate hikes in their next policy meetings, with Fed head Powell reiterating that their decisions are data-dependent.

With that, any indication of weakening price levels might be enough to convince dollar traders that the U.S. central bank is likely to sit on its hands next month.

Also keep in mind that the dollar might be on shakier footing if debt ceiling talks are stuck at a standstill this week, especially since the June 1 deadline is fast-approaching.

In contrast, the BOE might have no choice but to hike borrowing costs again in their next policy decision since the latest batch of U.K. CPI figures reflected stubborn inflationary pressures.

If the channel support holds as a floor, GBP/USD could recover to the channel top that lines up with R1 (1.2440) or at least until the mid-channel area of interest that coincides with the pivot point (1.2400).

Cable’s daily average volatility of roughly 90 pips puts these potential upside targets within reach if we see a significant downside surprise for April core PCE consensus of 0.3% and/or a return in anti-dollar sentiment.