GBPUSD has been treading higher but consolidating inside a rising wedge pattern on its 1-hour time frame. At the moment, price is testing the top of the formation around the 1.5600 major psychological level and may be due to head back towards support.
Stochastic is already indicating overbought conditions, which means that a selloff is possible. If that happens, price could fall to the support around 1.5500 to 1.5550, with a pending breakdown depending on how strong bearish momentum becomes. RSI is also nearing the overbought area, which might draw more sellers in.
Take note though that the 100 SMA is above the longer-term 200 SMA, which means that the ongoing uptrend is likely to carry on. An upside break past the wedge resistance at 1.5650 might be possible if pound bulls get stronger. The chart pattern is around 400 pips tall so the resulting move could be of the same amount.
GBPUSD Fundamental Factors
The event risks for this GBPUSD trade today include the UK CPI release. Headline inflation could show a 0.1% annualized gain for May, up from the previous 0.1% decline. Core inflation is expected to indicated a recovery back to 1.0% after falling to 0.8% last April.
Stronger than expected results could lead to an upside break, as this would confirm that the BOE won’t drop its relatively upbeat bias. On the other hand, another set of weak inflation readings might lead to a sharp selloff since this could lead the central bank to take a more dovish stance.
Later on this week, the UK is set to print its jobs data and retail sales reports. The BOE is also set to release the minutes of its latest policy meeting and probably give more clues on when they might start adjusting monetary policy. A shift to a more hawkish stance might mean more gains for the pound while a downbeat outlook could force the currency to retreat.
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