GBPUSD – Is the August Rally Now Over?Last Thursday GBPUSD printed a 1 month high at 1.3595, capping an August rally that saw it bounce just over 450 pips from a low of 1.3140 seen on August 1st. Now, the question for FX traders to consider is where does GBPUSD move next?
The August rally seems to have helped ensure that many of the over-extended weak GBPUSD short positions have been squeezed out leaving the decks a little clearer at the start of this new week.
The first move yesterday was to probe the downside, as risk sentiment dipped and the dollar bounced while traders awaited the outcome of key talks on the future of Ukraine between President Trump, Ukrainian President Zelenskiy and European leaders, which included UK PM Kier Starmer. This move resulted in an interim weekly low being registered this morning at 1.3487 before fresh buying interest appeared.
Interestingly, despite progress towards a new summit between Ukrainian President Zelenskiy and Russian President Putin being made, GBPUSD has so far struggled for any upside momentum (0700 BST).
Now, looking forward, there are some key scheduled events throughout the remainder of the week that could influence the direction of GBPUSD into the weekend. The first event is the UK CPI reading for July which is released at 0700 BST tomorrow morning. Higher than expected inflation in the UK was a major factor that led to a shock revote amongst BoE policymakers before deciding to cut interest rates 25bps (0.25%) at their meeting at the start of August. Another strong CPI reading on Wednesday could see trader hopes for one more rate cut in Q4 priced out altogether, with knock on implications for the currency.
On Thursday, the UK (0930 BST) and US (1445 BST) PMI surveys for August are due, and the service activity readings could provide pivotal information for traders trying to work out the direction of growth in the two countries. Then on Friday, Federal Reserve Chairman Powell speaks from the Jackson Hole Symposium at 1500 BST. Traders will be eagerly awaiting his comments to see if he flags the possibility of Fed rate cut when policymakers meet next on September 17th, or if he still sticks to the current ‘unchanged’ mantra he has followed in previous months.
Whatever the outcome it could be a volatile end to the week for GBPUSD traders to manage.
Technical Update: Back to 1.3589 Resistance
August has been a relatively strong month for GBPUSD so far, with a 3.46% recovery from the 1.3140 August 1st low to a high of 1.3595, on August 14th. However, as the chart below shows, this price strength has retested and so far, failed at resistance provided by the previous high from July 24th at 1.3589.
Looking forward, much could depend on how the resistance at 1.3589 performs over coming sessions. If it continues to cap any future GBPUSD rallies the risks for renewed downside moves may increase, while a successful break above this level could lead to a more sustained phase of price strength.
Possible Resistance Levels:
Having faced selling pressure around the 1.3589 level on two occasions (July 24th and August 14th) this area remains a potentially key resistance focus. Closing breaks above 1.3589 are required to suggest further GBPUSD strength might be on the cards.
If a daily closing break above the 1.3589 resistance does materialise, while not guaranteed, it could pave the way for further price strength, with the next potential resistance being seen at 1.3789, which is the July 1st session high.
Potential Support Levels:
While the resistance at 1.3589 continues to hold price strength, risks remain for a resumption of downside moves toward potentially important support levels.
The Bollinger mid-average currently at 1.3419 may now be the next support focus for traders. A close below this level, if seen, could be a catalyst for further price weakness, potentially leading to a fresh decline toward 1.3140/42, the August 1st low and 38% retracement level.
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