GBPUSD broke below the ascending triangle support on its 4-hour chart, signaling that price is in for more declines. The chart pattern is around 300 pips in height so the resulting selloff could last by the same amount.
Stochastic is on the move down, confirming that sellers are in control of price action at the moment. RSI is also heading lower, which means that there’s enough bearish momentum left to push for more gains. At the same time, the 100 SMA is moving below the longer-term 200 SMA, although an upward crossover might be possible.
If so, GBPUSD might still pull up to the broken triangle support around 1.5550 before heading further south. A larger correction could last until the 1.5600 major psychological level or until the triangle resistance at 1.5650.
Economic events in the UK turned out to be disappointing for pound bulls, as the central bank indicated that it isn’t ready to hike interest rates just yet. This represents a less hawkish outlook compared to BOE Governor Carney’s statement in the previous Inflation Report hearings indicating that they’re moving closer to increasing rates.
Only one MPC member voted to hike interest rates this time, as Ian McCafferty wasn’t joined by his fellow dissenter Martin Weale in pushing for tightening this time around. Some forex analysts were also disappointed to find out that David Miles, who has reportedly been shifting to a more upbeat stance, decided to vote against hiking rates for now.
Event risks for this setup include the NFP release in today’s US trading session, with an upside surprise likely to spur more declines for GBPUSD and a downbeat figure possibly spurring a rally. Keep in mind that Fed officials said that they are waiting to see more improvements in jobs data before deciding to tighten monetary policy probably in September.
By Kate Curtis from Trader’s Way