The GBP/USD pair shows signs of strength around 1.3540 during Wednesday’s early European session, as market participants digest expectations of a potential US Federal Reserve (Fed) interest rate adjustment. With traders anticipating a rate cut at the Fed’s September 16-17 policy meeting, the US Dollar (USD) faces downward pressure, boosting the Cable.
Market focus shifts toward the US August Producer Price Index (PPI) release later today, a key inflation indicator that could shape the Fed’s monetary policy trajectory in the near term. In this piece, Solancie brokers carefully examine the key aspects of the topic.
Technical Outlook: Bullish Momentum Persists
From a technical perspective, the constructive outlook for GBP/USD remains intact. The pair is well-supported above the 100-day Exponential Moving Average (EMA) on the daily chart, which continues to act as a strong dynamic support.
This level is crucial for confirming the bullish trend, and traders often consider breaks below it as a trend reversal signal.
The 14-day Relative Strength Index (RSI) currently stands near 66.50, well above its midline, highlighting the upward momentum and suggesting that near-term buyers retain control. This combination of support at the EMA and a bullish RSI indicates a favorable setup for further upside movement, provided the pair can navigate through immediate resistance zones.
Key Resistance Levels
The immediate resistance for GBP/USD emerges in the 1.3585-1.3600 zone, marking a crucial barrier for traders. This area aligns with multiple technical factors:
- Upper Bollinger Band: Acting as a natural ceiling for price swings.
- High of September 9: A recent short-term peak.
- Psychological level: Round numbers often influence market sentiment.
A decisive break above 1.3600 could trigger further buying interest, potentially aiming for 1.3632, the high recorded on June 13. Beyond this, the next major resistance is seen at 1.3752, the high of July 2, representing a longer-term upside target.
Traders often interpret these levels as barometers for the strength of bullish trends. Sustained trading above the 1.3600 zone may confirm that GBP/USD is poised for extended gains, with technical momentum supporting the case for a higher price trajectory.
Support Levels and Downside Risks
On the downside, initial support for the Cable lies at the September 1 low of 1.3496. A break below this level could prompt a corrective phase, potentially pushing the pair toward the lower Bollinger Band, near 1.3400.
Further, the 100-day EMA near 1.3388 serves as a key support line, where buyers might step in to defend the uptrend. Breaching this dynamic support could signal a shift in market sentiment, paving the way for a deeper retracement toward previous lows.
US PPI: Market Catalyst
Traders are keeping a close eye on the US August Producer Price Index (PPI), scheduled for release later Wednesday. As a critical inflation metric, the PPI offers insights into upstream price pressures in the US economy.
If the PPI data shows a slower-than-expected increase, it may strengthen expectations for a Fed rate cut, supporting further USD weakness and providing additional upside potential for the GBP/USD pair. Conversely, a higher-than-expected reading could reinforce USD strength, challenging GBP/USD bulls and potentially testing the 1.3496 support level.
Market Sentiment
The current market sentiment appears positive for GBP/USD, supported by technical bullishness and fundamental expectations of US monetary easing. Traders often consider a combination of technical indicators, such as the EMA, RSI, and Bollinger Bands, alongside fundamental data, to plan entry and exit strategies.
- Long positions may target 1.3600 initially, with a secondary objective around 1.3632-1.3752 if the upside momentum persists.
- Protective stops could be placed slightly below 1.3496 to manage downside risk.
- Short-term traders may watch the PPI release closely, as sudden volatility spikes are common following key economic data.
Conclusion
In summary, GBP/USD is trading on a strong note near 1.3540, bolstered by technical support above the 100-day EMA and a bullish RSI reading. Immediate resistance lies in the 1.3585-1.3600 zone, with further targets at 1.3632 and 1.3752 if bullish momentum continues.
On the downside, support is identified at 1.3496, followed by the lower Bollinger Band at 1.3400 and the 100-day EMA at 1.3388. Traders remain attentive to the US August PPI, which could serve as a catalyst for short-term volatility and influence the Fed’s interest rate strategy.
Overall, the GBP/USD outlook remains constructively bullish, but careful monitoring of key resistance levels and fundamental developments is essential for managing risk and positioning effectively.
