GBP / USD WEEKLY FORECAST: DROP
- GBP / USD has coiled into a symmetrical triangle in recent months, a sign that the pair is consolidating
- With the Fed and Bank of England’s monetary policy decision next week, volatility could accelerate and trigger an explosive move in price action
- A downside breakout looks likely, especially after a death cross surged in the daily chart earlier this month
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GBP / USD price action has not been exciting in the past some months. Meanwhile, the pair has curled inside what appears to be a symmetrical triangle, making lower highs and higher lows sequentially, a clear trait of an asset in consolidation mode.
Recently, lower volatility due to thinner volume, typical of the summer season, made the price action even less attractive to traders accustomed to wild oscillations. In fact, neither searing inflation nor weak retail sales data of UK this week were able to wake the pair of sound sleep.
At the same time youuncertainty about the trajectory of monetary policy in the United States and the United Kingdom before the SSeptember Fed and Bank of England meeting may have led traders to sit on the sidelines and avoid taking large directional positions in GBP / USD. However, with the FOMC and BoE decision next week, the market lethargy may soon end, paving the way for an explosive move.
From a strictly technical point of view, it doesn’t matter what either of these central banks decides to do; the only thing that matters is how the prices react to their actions. Market reaction, in turn, could provide clues to the near-term outlook and general feeling.
Related: An overview of the GBP / USD currency pair
Getting back to GBP / USD, the pair is unlikely to make a major directional move until it exits consolidation mode. For this to happen, the price would have to come out of symmetry Trianglediscussed earlier. In this spirit, key resistance currently stands at 1.3885, while support can be seen near 1.3670.
If the GBP / USD pair swings higher and climb above 1.3885, there would be room for a move towards 1.4000 and possibly 1.4247. On the other hand, if the pair is more sales pressure and manages to break through the 1.3670 floor, bear could aim for the July trough in the 1.3572 region before the end of September.
From a technical analysis point of view, current market consolidation could be resolved downward, especially after the blazing cross of death at the beginning of the month. The death cross, by definition a bearish signal, occurs when the 50 day delay SMA downward trend and crosses the 200 days SMA from top to bottom.That said, it wouldn’t be surprising to see the GBP / USD pair weakness in the coming week.
GBP / USD DAILY TECHNICAL CHART
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— Written by Diego Colman, DailyFX Market Strategist