Expect more volatility with the U.S. Dollar? Well, GBP/USD may be the pair for you as prices consolidate around a strong mix of technical arguments!
Are you watching for a break on Cable?
GBP/USD: 1-Hour
GBP/USD 1-Hour Forex Chart by TradingView
Check out this textbook setup on GBP/USD! The pair has been in bear mode for quite some time (basically through all of September), a reflection of the divergent monetary policy narratives from both the Bank of England (signaled policy was restrictive enough at the beginning of September) and the Federal Reserve (sees a possibility of one more rate hike in 2023).
Those narratives still hold, but USD strength seems to be fading a bit across the markets the closer we get to the end of the year & potentially last rate hike, prompting another bounce in GBP/USD this week.
Is this another opportunity for the sellers to press their shorts or fresh sell orders at better prices?
As always, the fundies ahead will determine that, but from a purely technical perspective, there are plenty of arguments to draw traders to the short side.
First, the overall downtrend is still intact. Until the market sustains a break above the confluence of a falling ‘highs’ trendline, the falling moving averages, and a minor broken support-turned-resistance area, trend traders are still likely to play this pair to the downside.
Now, the downtrend is a little long in the tooth, so it’s likely traders are less bearish at these levels, so it’s likely they’d wait for a solid return to the downtrend before sizing up a position. A downside break of the current consolidation at the MA’s and Fibs may be the trigger to bring’em in, potentially taking’em back to swing lows around 1.2050.
On the other side of the coin, if the market break above the technical confluence discussed above, that may be the trigger to draw in long players, a possibly scenario given that we still have top tier catalysts ahead to potentially spark volatility.
A sustained break above the 1.2180 minor support-turned-resistance area may draw in fresh USD sellers. And based on the daily ATR of around 88 pips, increased volatility could take the pair up to the previous swing highs area between 1.2225 – 1.2260, a potential scenario with top tier catalysts like the U.S. jobs update ahead!
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