GBP USD maintains rebound but resistance looms

As of Monday, GBP/USD has maintained its rebound of the last week and a half, but strong technical resistance factors could place renewed pressure on the currency pair.

Since its low of 1.5106 in the beginning of the month, GBP/USD has made a sharp rebound as the US dollar has weakened on reinforced expectations of a delayed rate hike by the Fed.

This rebound has brought the currency pair up to a key resistance zone around the 1.5350 level. This resistance is also fortified by the current location of the 200-day moving average, as well as a key downtrend resistance line that extends back to late August’s 1.5800-area high. In addition, the 50-day moving average has been descending and beginning to converge with the 200-day moving average.

This technical setup occurs as a relatively data-heavy week hits both the UK and US. Inflation takes center stage this week with UK CPI data on Tuesday followed by US PPI on Wednesday and US CPI on Thursday. These key inflation releases could be even more market moving than usual, as the currency markets are almost singularly focused on the timing of rate hikes in the US and UK. The Fed has cited low inflation as one of the primary reasons for delaying an initial rate hike last month. This week’s inflation numbers could change or confirm the market’s view on the relative timing of UK/US rate hikes. Key employment numbers for the UK as well as US retail sales data are also slated to be released on Wednesday.

If the current resistance zone holds during the course of this week, any turn back down towards 1.5200 could once again resume targeting the 1.5000 psychological support objective to the downside. In the event of a sustained breakout above the resistance imposed by the noted downtrend line and two key moving averages, any further upside for GBP/USD in the short-term should be met by strong resistance around the key 1.5500 level.