GBPUSD Reversal Pattern (July 20, 2016)

This is a classic uptrend reversal signal, with selling pressure likely to increase once price has broken below the neckline at the 1.3100 major psychological level.

The chart pattern is approximately 350 pips tall so the resulting breakdown could last by the same amount, taking GBPUSD down to 1.2750 or its record lows. However, the 100 SMA is still above the 200 SMA so the path of least resistance might still be to the upside. In addition, stochastic is indicating oversold conditions so buyers might be ready to take control of price action. 

In that case, GBPUSD could still bounce up to the resistance around the 1.3300 handle or the tops at 1.3450. A break past that area could signal that pound bulls could continue to gain traction. 

Data from the UK came in stronger than expected yesterday. Headline CPI rose from 0.3% to 0.5%, outpacing the estimate at 0.4%, while core CPI rose from 1.2% to 1.4% versus the consensus at 1.3%. However, the pound failed to make a strong rally after the IMF downgraded growth forecasts for the UK economy for this year and the next due to the Brexit. 

For today, the jobs figures are up for release. Claimant count could increase by 4.1K versus the previous 0.4K drop while the unemployment rate is expected to hold steady at 5.0%. The average earnings index might rise from 2.0% to 2.3% to show faster wage growth.

Weaker than expected data could trigger a sharp drop for the pound since this would reveal that the employment situation is already weak ahead of further downside pressure from the Brexit. As for the US, building permits and housing starts came in line with estimates yesterday. There are no reports due from the US today but earnings releases could dictate dollar action. 

By Kate Curtis from Trader's Way