GBP/USD Rebounds From 1.3202 Ahead of US PCE Data
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The market seems to be getting to a crucial point as the US Dollar finally begins to show signs of slipping, although it remains not far from its long-term high. The GBP/USD currency pair has come into focus as recent hours have proven it to be a major beneficiary of this slip. With highly important US economic data arriving today, we could be on the cusp of a very pivotal moment.
GBP/USD Fundamental Analysis
The US Dollar’s fundamental outlook remains broadly bullish but has come into question after Fed member Williams made public comments yesterday in favour of only one further rate hike of 0.25%. This has sent the market’s priced probability of an October rate hike from about 70% to only 45% in a single day. However, US yields and persistent inflation risks remain high and have not vanished. There will be a release of PCE Price Index data later today which is a leading inflation indicator closely watched by the Fed, and any surprise here could well set the tone. There is likely greater scope for a move against the US Dollar if the data is surprisingly low, than the opposite situation.
The pound’s fundamentals look modestly stronger after today’s revision showed UK GDP grew 0.5% in the second quarter, up from the initial 0.4% estimate. Inflation remains a concern: August CPI was 3.1%, and the Bank of England held rates at 3.75% in September, with three of nine policymakers voting to raise them. Resilient growth and the prospect of tighter policy could support sterling, though higher energy costs and their effect on growth remain risks.
This means fundamentals and sentiment are weakening for the USD and strengthening slightly for the GBP.
GBP/USD Technical Analysis
The past day has seen a potentially very important technical development – the rejection of the support level at 1.3202 which I highlighted in my analysis yesterday, which is very close to a long-term low. We have seen the price rise from there with strong momentum, driven by this new question over the USD’s interest rate path, and a technical buying opportunity which makes sense near a long-term low.
The move higher has been notably strong, which the price easily tearing through the former resistance level at 1.3247, although over the last hour, the resistance level at 1.3277 has succeed to hold the price down, or at least to prevent it from advancing further for the time being.
The basing off the support level at 1.3224 was also a bullish sign.
I will not be looking for a short trade here as the price is likely to hold below 1.3277 until the highly important US PCE data is released later. Any surprise here will likely drive the next major move. If the PCE is in line with the consensus forecast of a 0.3% month-on-month increase, what happens next technically will give an important clue – if there is a bullish breakout anyway, that will indicate major players are betting on a reversion to the mean from these long-term lows, so looking for long trades will make sense in that case.
My Take on the GBP/USD
I think in the hours before the PCE release, only short-term scalps from rejections of support or resistance on short-term time frames will make sense. After the PCE release will be the time for swing or position trading. If the PCE is neutral or lower than expected, and the price gets established above 1.3277, it could be a great opportunity for a long swing or position trade.
Review, Support & Resistance Levels
My previous GBP/USD free signal on 29th September was not triggered.
New trades should only be entered prior to 5pm London time today.
Long Trade Ideas
Go long following a bullish price action reversal on the H1 timeframe immediately upon the next touch of 1.3247, 1.3224, or 1.3202.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to ride.
Short Trade Idea
Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of 1.3274, 1.3294, or 1.3309.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high impact scheduled today concerning the British Pound. Regarding the US Dollar, there will be releases of Core PCE Price Index and Final GDP data at 1:30pm London time.
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