GBPUSD formed lower highs and found support at the 1.2400 major psychological level recently, creating a descending triangle chart pattern. Price just bounced off the resistance and is moving closer to testing support.
The pair is also approaching the peak of the pattern, which means that a breakout could happen sooner or later. The chart pattern is approximately 300 pips tall so the resulting breakout could be roughly the same size. The 100 SMA is currently below the longer-term 200 SMA so the path of least resistance is to the downside. In addition, the moving averages are close to the triangle resistance, adding to its strength as a ceiling.
Stochastic is on the move down, indicating a pickup in selling pressure. However, the oscillator is already dipping into the oversold region, which means that buyers could get back in the game soon and push for a bounce off support or a break higher.
The main event risk for the pound could be the Brexit debtes going on in the House of Lords, as any indication that leaders might cause additional delays would extend the period of uncertainty for the UK economy. On the other hand, clearing this hurdle fairly smoothly could spur a relief rally for the pound.
Data from the UK has been mostly weaker than expected last week, as the consumer sector showed signs of lagging on slow wages combined with rising price levels. Prior to this, industry PMI readings also showed some weakness. This week, the second GDP estimate is due and a downgrade could also increase downside pressure on GBPUSD.
As for the dollar, futures are pointing to a higher open for stocks and sustained gains for the week as top retailers are scheduled to report earnings. Traders are also looking out for Trump’s tax announcement, which might also be positive for equities and the dollar.
By Kate Curtis from Trader’s Way