GBP/USD Bears Tighten Grip Amid Downtrend Channel
Market Overview
As U.S. markets reopen after the extended weekend, the dollar has begun September on a strong note, holding close to its two-week highs ahead of key economic reports. The CME FedWatch tool indicates that markets are pricing in a 69% probability of a 25 basis point (bps) rate cut at the upcoming Federal Reserve meeting on September 17-18, with a 31% chance of a larger 50 bps cut. This expectation of monetary easing has bolstered the dollar, applying downward pressure on major currencies, including the British pound. In the absence of significant economic events in the UK, the pound’s movement is currently heavily influenced by the fluctuations in the U.S. dollar.
Technical Analysis
On the four-hour chart, the GBP/USD pair has entered a downtrend channel following the end of its one-month bullish run. The pair is currently trading between the upper boundary of the channel at 1.31547 and the lower boundary at 1.31093. Sellers have recently challenged the 100-period moving average near the lower boundary at 1.31093. A sustained break below this level could signal a continuation of the bearish trend, targeting further downside levels at 1.30970, 1.30784, and 1.30639.
Oscillator Confirmation
Moving Averages: Converging with a downward slope, indicating increasing bearish momentum.
MACD (Moving Average Convergence Divergence): Bars are crossing below the signal line in the negative territory, suggesting growing selling pressure.
RSI (Relative Strength Index): Dipping into the oversold region, reinforcing the bearish sentiment in the market.
Alternative Scenario
Should buyers manage to defend the 100-period moving average and the previous low, a break above the channel’s upper boundary at 1.31547 would invalidate the bearish scenario. This breakout could signal a potential reversal and a shift back to a bullish trend.
Key Levels
Resistance Levels:
- Resistance 2: 1.31547
- Resistance 1: 1.31266
Current Price: 1.31190
Support Levels:
- Support 1: 1.30970
- Support 2: 1.30784
- Support 3: 1.30639
- Support 4: 1.30330
Key Events to Watch
In early North American trading, investors will focus on the S&P Global Manufacturing PMI report for August, expected to show a decline from the previous period. Additionally, the U.S. Construction Spending report for July and the ISM Manufacturing PMI will be released. Better-than-expected data could further strengthen the dollar and add pressure on the GBP/USD pair.
Conclusion
The GBP/USD pair is currently under bearish pressure due to the strong dollar, driven by expectations of a rate cut from the Federal Reserve. In contrast, the lack of significant economic catalysts from the UK leaves the pound vulnerable to broader market trends. The technical indicators suggest a continuation of the downtrend, with a potential move towards lower support levels if the 100-period moving average is broken. However, a recovery above 1.31547 would challenge this view and potentially indicate a bullish reversal. The upcoming U.S. economic data, particularly the PMI reports and construction spending figures, will be crucial in determining the next move for GBP/USD. Traders should also keep an eye on Fed-related news as market expectations continue to shape the pair’s trajectory.