GBPUSD seems ready for a long-term reversal as price formed a double bottom visible on the daily and 4-hour time frames. The pair failed in its last two attempts to break below the 1.2800 major psychological level, creating this reversal formation.
Price has yet to test and break past the neckline resistance at the 1.3400 major psychological level before confirming the potential uptrend. The chart pattern is around 600 pips in height so the resulting rally could be of the same size, taking GBPUSD to 1.4000 next.
However, the 100 SMA is still below the longer-term 200 SMA so the path of least resistance could be to the downside. These moving averages are oscillating, though, indicating that the range-bound action could carry on.
Stochastic and RSI are both indicating overbought conditions, which suggests that buyers might need to take a break and let sellers take over. In that case, another drop towards the 1.2800 handle could be possible.
All this could hinge on the upcoming NFP release since traders are counting on this report to support or weigh on the odds of another Fed rate hike before the year comes to a close. Fed policymakers have been emphasizing that they’re waiting for stronger evidence of jobs growth before deciding to tighten and the August jobs report could convince them to give the thumbs up for a hike either this month or in their December meeting.
Keep in mind, however, that the ISM manufacturing PMI printed dismal results for the jobs component, reflecting a sharper decline in the workforce for August. On the other hand, the ADP non-farm employment change came in slightly stronger than expected, accompanied by a positive revision in the previous reading.
The US unemployment rate is expected to improve from 4.9% to 4.8% while average hourly earnings could see a 0.2% uptick, slower than the earlier 0.3% gain. Downbeat data could dampen rate hike hopes and trigger a neckline test for GBPUSD.