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GBP/USD paused below breakout support as traders weighed political uncertainty over the UK and USD amid a lack of economic data.
Both currencies are currently stable, but this calm appears to be temporary.
Both currencies are currently stable, but this calm appears to be temporary.
British pound takes center stage
Sterling is still struggling to recover from last week’s turmoil in UK bond markets.
Friday’s fall was the biggest since July after the government abandoned plans to increase income tax, raising doubts about whether Finance Minister Rachel Reeves will be able to stick to fiscal rules in the next budget.
Yields have since fallen and stabilized, but investor confidence remains fragile.
All eyes are now on Wednesday’s inflation data, which could test markets again if prices show no signs of cooling.
As for the United States, the dollar stabilized following the end of the longest government shutdown in the country’s history.
Minutes from the Federal Reserve meeting are scheduled to be released this week, but the absence of key reports such as employment and inflation data has left markets in a state of uncertainty and speculation.
Pressure builds up below resistance
Technically, GBP/USD has been forming a series of lower highs since mid-September, forming a descending trendline on the daily chart.
After breaking through multiple support levels in late October, the pair spent much of November in a consolidation phase, bouncing higher to retest the broken support area.
This area also overlaps with the so-called fair value gap, which is an area where prices fluctuate rapidly during a decline, resulting in few or no transactions within the area. Such gaps tend to attract temporary rallies before the overall trend resumes.
Price action is currently forming below the dual resistance area, a pattern that often precedes strong two-way moves.
On the one-hour chart, it is clear that the price is moving in a narrow ascending channel, which traders can use to identify entry and exit areas.
A breakout of the channel’s lower boundary would be in line with the long-term downtrend, while a bullish breakout of the channel’s upper boundary could lead to short-term buying pressure.
Currently, the GBP/USD pair remains in a consolidation mode between the cautious GBP and the data-hungry USD, and with the price range narrowing, the next move will reveal which side is in control.
GBP/USD daily chart
Past performance is not a reliable indicator of future results
GBP/USD hourly chart
Past performance is not a reliable indicator of future results
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