GBP/USD Rally Due for a Minor Pause?

GBP/USD, BRITISH POUND – Technical Outlook:

• GBP/USD’s broader trend remains up.
• However, some softness in the pair can’t be ruled out ahead of key UK data
• What are the signposts to watch?

A negative divergence on the daily charts suggests the British pound’s rally against the US dollar is losing steam in the short term, pointing to the possibility of a consolidation/minor retreat ahead of key UK data due this week.

A raft of UK data is due this week, starting with jobs data on Tuesday; inflation data on Wednesday; Gfk consumer confidence, retail sales, and April flash PMIs on Friday. UK core inflation is expected to have softened to 0.6% on-month in March from 1.2% in February, while headline inflation is forecast to have eased to 9.8% on-year last month from 10.4% in February. Moreover, if there are signs of rapid wage growth could keep inflationary pressures intact.

GBP/USD 240-Minute Chart

Chart Created Using TradingView

The Bank of England raised hiked the Bank Rate by 25bps in March and left the door open for further hikes if inflation showed signs of “persistence”. Hence this week’s data will be key in determining whether BoE decides to pause or proceed with one more rate hike. The market is pricing in a 67% chance of a 25-bps hike at the May 11 meeting.

GBP/USD Weekly Chart

Chart Created Using TradingView

Meanwhile, the colour-coded candlestick charts based on trend/momentum indicators show GBP/USD remains in a bullish phase on the daily charts. However, as noted in the previous update, see “British Pound Price Setup: GBP/USD, EUR/GBP, GBP/JPY”, published March 29, GBP/USD has been weighed by a tough converged barrier at the top end of a sideways channel since end 2022.

GBP/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

The upper edge is a horizontal trendline at about 1.2450, while the lower edge is a similar trendline at about 1.1850. Any break above the top end of the range would trigger a bullish break from the channel, potentially opening the door for a move toward 1.3000.

However, GBP/USD’s rally is showing some signs of fatigue, suggesting the pair may not yet be ripe for a bullish break just yet (even though the broader trend is up). On the 4-hourly charts, the fall below a minor uptrend channel since mid-March confirms that the upward pressure could be easing. In this regard, key support is at the April 10 low of 1.2345.

GBP/USD Daily Chart

Chart Created Using TradingView

Any break below would trigger a minor double top (this month’s highs), opening the way toward 1.2200. Nonetheless, there is a fairly strong cushion on the 89-day moving average, 200-day moving average, and the lower edge of the sideway channel that could restrict any downside.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish