GBPUSD continues to trend lower in its descending channel on the 1-hour time frame. Price just bounced off support recently and is finding a ceiling at the channel resistance around the 1.3400 handle once more.
Stochastic is on the move down to confirm that selling pressure is in play. The 100 SMA is also below the longer-term 200 SMA to signal that the path of least resistance is to the downside. This means that the selloff is more likely to continue than to reverse.
However, the gap between the moving averages has narrowed to indicate weaker selling momentum. If an upward crossover materializes, bullish momentum could return and lead to a break past the channel resistance.
The US dollar is enjoying strong support from optimism surrounding tax reform as lawmakers are scheduled to make their final vote likely today. If all goes well, US President Trump can be able to sign the bill into law by the end of the week to mark the first major legislative victory for the administration.
US equities are already trading at record highs in anticipation of a positive outcome. Several analysts have noted that this might merely lead to a short-term boost to growth rather than a long-term one, but the fact remains that it would likely keep business activity and consumer spending elevated early next year if the bill is approved.
Meanwhile, the pound has lost a bit of ground last week on a relatively cautious BOE statement. Policymakers voted unanimously to keep rates and asset purchases unchanged, although a number of top-tier reports turned out strong. Brexit remains a risk for businesses even as a deal has been made.
By Kate Curtis from Trader’s Way