GBPUSD has formed lower highs and found support at the 1.2850 minor psychological level, creating a descending triangle formation. Price just bounced off the triangle support and looks ready to test resistance around the 1.3200 major psychological level.
If this area holds as resistance, price could make another attempt at testing the triangle support. The 100 SMA is below the 200 SMA so the path of least resistance is still to the downside. However, the gap between the moving averages is narrowing so a crossover could take place.
If so, buying pressure could get stronger and push for an upside breakout. The chart pattern is approximately 600 pips tall so a resulting breakout could be of the same size. RSI is pointing up to indicate that bulls are in control of price action for now. Similarly stochastic is turning higher to show a return in bullish momentum.
Data from the UK has been mostly stronger than expected last week, assuring market watchers that the economy is staying afloat even after the Brexit vote. Inflation, employment, and consumer spending have been stronger than expected for July.
Meanwhile, the FOMC minutes suggested that majority of policymakers aren’t inclined to hike interest rates next month and might even wait until next year before deciding to tighten again. However, some hawkish members have given their upbeat remarks recently, still keeping the dollar supported.
Also, rumors that UK Prime Minister May might invoke Article 50 by April next year instead of waiting until the end of 2017 to officially start Brexit negotiations weighed on the pound. This could bring additional uncertainty ahead of the French and German elections, although government officials haven’t given any confirmation just yet.