GBP/USD is pressing toward a cluster of resistance around $1.3400 after breaking out of an ascending price channel late last week. A falling US Dollar Index and a firm British Pound are driving the move, with FOMC minutes due later today.
The pound is climbing toward a decisive test at $1.3400, where a horizontal resistance level at $1.3402, the round number, and a medium-term descending trend line converge. That confluence sits directly above a market that broke out of a symmetrical ascending price channel at the end of last week and has kept grinding higher, even as the move has turned jerky and disorderly.
A firmer Pound meets a slipping Dollar
GBP/USD usually takes its cue from the US Dollar rather than the pound, but that balance may be shifting as sterling establishes itself as one of the strongest major currencies. The US Dollar Index is falling more decisively, even though markets still expect a rate hike by the Fed soon. That expectation appears priced in, and traders seem to view the dollar as a bit overbought, which is helping it slide.
Both currencies carry relatively high interest rates, giving each latent strength. Yet the near-term direction favors the pound, which was strong last week and opened well again today. Since breaking out, the pair has printed a pattern of higher lows, with a higher low around $1.3350 following an earlier near-double bottom near $1.3330.
The levels that matter
The $1.3400 confluence is likely to act as strong resistance, setting up a pivotal test if price reaches it during the day. That resistance marks the line the pair must clear to keep advancing. A strong break above $1.3402 could open a path toward $1.3489, while a fast rejection there could send the pair back toward $1.3350 or $1.3300.
On the downside, the DXY resistance at 100.88 is expected to hold and put a floor under GBP/USD near the $1.3300 support. The previous signal, dated 6th July, looked for a long above $1.3225 and could have captured as much as about 70 pips.
Volatility across US Dollar pairs has picked up after a year of low-volatility, sideways trade. The next catalyst comes at 7pm London time, when the FOMC releases its meeting minutes.
Source: DailyForex
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