GBP/USD Consolidates Below Key Resistance Level Ahead of Volatile Data Week
The GBP/USD currency pair has been trading quietly after making a reversal about one week ago. The reversal was significant, but now it's not in a hurry. This could be the calm before the storm as market liquidity is low and prone to strong directional price movements.
The reason for the potential volatility ahead is the release of high-impact data this week. Today's US PPI data will be followed by tomorrow's actual US inflation data, also known as CPI. The British Pound can move with the UK GDP data due out tomorrow, and the ECB policy meeting today may also impact it.
The price has been consolidating within a narrow range below 1.3570 after breaking out of a descending price channel. This invalidated the support level at 1.3554, but it's actually seen as bullish because key resistance was just invalidated. The cluster of closely packed support levels starting at 1.3530 and the confluence with the big round number at 1.3500 support the bullish bias.
However, if US PPI or CPI inflation data surprises to the upside or Fed speakers reinforce hawkish positioning, dollar strength could resume sharply, catching sterling longs off guard. The higher-low pattern masks distributional risk as the recovery has occurred on lower volume than the initial breakdown.