The GBP/USD currency pair has entered a critical phase following its recent sell-off and subsequent recovery. Traders are assessing whether the British Pound can sustain upside momentum against the US Dollar, especially given this week’s highly influential economic data releases. 

With both technical signals and fundamental drivers aligning, the short-term outlook suggests further upside potential, though the risks remain firmly in play. LevaQuant’s expert Mathew Sharp shares an in-depth analysis of the subject in their latest article.

Light UK Calendar, Budget Concerns Remain

The UK economic calendar this week is relatively quiet, offering little in the way of market-moving data. However, budget deficit concerns continue to hang over the Pound. Economists expect the S&P Global Construction PMI for August to remain in contraction territory, underscoring persistent weakness in Britain’s construction sector.

Still, a single minor data release is unlikely to shift overall market momentum. The dominant theme remains fiscal policy uncertainty and whether the government can stabilize investor confidence in its spending trajectory. This backdrop places additional weight on US data releases, which are likely to dictate GBP/USD price direction in the short term.

Key US Data Releases in Focus

Across the Atlantic, a cluster of labor market and services sector data will guide the next leg of US Dollar performance.

• ADP Employment Report: Economists expect private sector job creation of only 73K in August, down from July’s disappointing 104K reading. Such weak labor growth reinforces concerns about a cooling US jobs market.
• Initial Jobless Claims and the Challenger Job Cuts Report will provide additional clarity on the employment landscape, while Unit Labor Costs and Non-farm Productivity data will influence expectations of wage pressures and inflation persistence.
• The ISM Non-Manufacturing PMI for August is projected to rise modestly from 50.1 to 50.9. Traders should also closely monitor the Prices Paid component, which is a leading indicator of inflationary trends.
• The S&P Global Services PMI and Composite PMI figures will further shape sentiment on the US services sector, which remains the backbone of economic activity.
• Lastly, the US trade deficit is forecast to widen sharply in July, from $60.2 billion to $77.7 billion, potentially weighing on Dollar sentiment.

Technical Outlook: Bullish Reversal in Play

From a technical analysis perspective, GBP/USD has staged an impressive rebound following Tuesday’s steep sell-off. That decline, which confirmed prior bearish calls, gave way to a sharp recovery as buying volumes surged, validating a momentum reversal.

Most notably, the pair has now climbed above the descending Fibonacci Retracement Fan, signaling a break from the prior bearish structure. This breakout has been reinforced by a series of bullish signals:

• The Bull Bear Power Indicator has held in positive territory throughout the recovery, confirming underlying strength.
• Price action has carved out a bullish price channel, established through multiple breakouts. This channel provides traders with a clear roadmap for short-term targets.
• Rising trading volumes on upswings confirm that market participants are supporting the rally, reducing the likelihood of a false breakout.

Taken together, these developments suggest that the path of least resistance remains higher, with the next key test at the intraday high of $1.34586.

Why the Bullish Case Stands Out

Despite the macro uncertainties, the Pound Sterling appears poised for more upside against the Dollar. The key reasons include:

• Momentum Confirmation: The reversal was not just technical; it was supported by significant buying activity, lending credibility to the upside.
• US Economic Risks: The combination of soft labor data, a widening trade deficit, and tepid services growth could reinforce Dollar weakness.
• Channel Guidance: With a well-defined bullish price channel, traders have a structured framework for targeting gains and managing downside risk.

For these reasons, the short-term bias favors further appreciation in GBP/USD, with the potential to retest and possibly exceed the $1.34586 resistance level if US data underwhelms.

Conclusion: Watching Data, Riding the Channel

The GBP/USD pair is once again a focal point for Forex traders, caught between muted UK data and high-stakes US releases. The technical breakout above Fibonacci resistance, coupled with the Bull Bear Power Indicator’s bullish signal, provides a constructive backdrop for further gains.

However, traders must stay nimble. Every major US report. from the ADP jobs data to the ISM Non-Manufacturing PMI, has the potential to shift Dollar sentiment and test the resilience of this rebound.

In the near term, the most likely outcome is continued Pound strength, with intraday opportunities in the 50–75 pip range. By aligning technical setups with economic fundamentals, traders can navigate the volatility and potentially capitalize on GBP/USD’s bullish trajectory.