GBPUSD Countertrend Setup (May 18, 2017)

Price just bounced off support and could be due for a test of resistance from here.

The 100 SMA is above the longer-term 200 SMA on the 4-hour chart so the path of least resistance is to the upside. However, stochastic is approaching the overbought zone to indicate a return in selling pressure so the ceiling might still hold. If so, a pullback to the channel support at 1.2925-1.2950 could offer a better long entry level.

UK economic data has been mostly stronger than expected, with CPI readings indicating a strong surge in headline and core inflation. Jobs data was also upbeat as the claimant count came in at 19.4K versus the earlier 33.5K increase while the unemployment rate edged down from 4.7% to 4.6%. The average earnings index advanced from 2.3% to 2.4% as expected to reflect a bit of wage growth.

Meanwhile, the dollar is currently being weighed down by political headlines as the focus has shifted to Trump's alleged intelligence information leak to Russia. An official probe has been ordered by the Justice Department, leading market watchers to worry that any fiscal reforms would likely be delayed by these issues. Initial jobless claims and the Philly Fed index are lined up today.

By Kate Curtis from Trader's Way