GBP/USD tumbled yesterday following Barnier’s comments and the release of the EU’s draft treaty on Brexit. The slide brought the pair below the support zone of 1.3805 and the uptrend line drawn from the low of the 13th of November, but it was stopped near the 1.3740 support. Cable is also trading within a downside channel that’s been containing the price action since the 23rd of January, which makes it likely that it will continue trading south for a while yet.
However, we have to note that a lot of today’s forthcoming direction could depend on Powell’s remarks to Senate tonight, as well as the release of the core PCE index, the Fed’s favorite inflation measure. Accelerating inflation and another round of hawkish remarks by Powell could weigh on the pair and perhaps drive it below 1.3740. Such a break could pave the way for our next support barrier of 1.3660, marked by the inside swing peak of the 20th of September.
That said, our short-term oscillators make us cautious that a corrective bounce may be in the works before sellers decide to seize control again, perhaps to challenge the crossroads of the 1.3805 level and the aforementioned uptrend line as a resistance this time. The RSI lies below 30, but is flattening. It could rebound back above 30. The MACD, although below both its zero and trigger lines, shows signs that it could start bottoming as well.
On the upside a clear break above 1.3805 would bring the rate above the uptrend line and perhaps initially aim for our next resistance of 1.3855. Nevertheless, even if this is the case, the pair would still be trading within the downside channel, and as such we would prefer to take the side lines if something like that occurs.
