GBP USD retests major 1 5500 resistance before pulling back

GBP/USD retested major resistance around the 1.5500 level on Monday before retreating. This key level has recently served as an important resistance area, particularly in mid-October when the currency pair made multiple breakout attempts during the course of more than a week. Each of those October attempts failed as GBP/USD was repeatedly unable to breach the level.

Monday’s early climb to 1.5500 extends the surge of late last week, when the currency pair advanced from a mid-week low of 1.5241, broke out above the key 1.5350 support/resistance level, and rose above both its 200-day and 50-day moving averages.

Overall, the outlook for GBP/USD remains bearish below 1.5500 in light of increased market expectations for a potentially sooner rate hike in the US than previously anticipated. Last week’s FOMC statement was seen as leaning towards the hawkish side, as the Fed de-emphasized global economic concerns and mentioned that a decision will be made as to whether it is “appropriate to raise interest rates at its next meeting.” This slight change from previous wording raised speculation that a rate hike during the December Fed meeting is still very much in the running.

As the US dollar may be strengthened in the medium-term by the Fed’s impending decision(s) on rate hike timing, thereby potentially pressuring the GBP/USD, sterling has its own interest rate challenges to deal with. Thursday’s Official Bank Rate and Monetary Policy Summary coming from the Bank of England could affect the currency pair significantly. With the UK also potentially on track to raise interest rates in the foreseeable future, any signals coming out of the Bank of England on Thursday should be a major mover of the British pound. In particular, any comments seen as dovish could accelerate GBP/USD’s retreat from 1.5500.

Also vitally important this week is Friday’s US Non-Farm Payrolls and Unemployment Rate reports for October. With the last four Non-Farm Payrolls reports falling significantly below prior expectations, this upcoming report will be closely watched for its potential implications on the timing of a Fed rate hike.

Having tentatively retreated from the 1.5500 resistance level on Monday, GBP/USD is currently at a critical juncture. With the noted fundamental events coming up later in the week, the currency pair could see heightened volatility. If it continues to trade under 1.5500, GBP/USD could well see a return back down to the 1.5350 support/resistance level, where both the 200-day and 50-day moving averages are approximately situated. Any further downside momentum could pressure the pair down towards the key 1.5100 support level, where the currency pair last bottomed out in early October. In the event of any news-driven breakout above 1.5500, GBP/USD should be met with key resistance around the 1.5650 area.