TA of the day: GBP/USD bullish signs emerging! Is a trend reversal underway?

The US dollar weakened against major currencies today as inflation showed signs of easing, further supporting the possibility of a Fed rate cut in September.

The US consumer price index (CPI), a key measure of inflation, rose 2.9% annually, just 0.1% below June’s rate.

This decrease was in line with market forecasts and marked the first time CPI fell below 3% since March 2021. This suggests underlying inflationary pressures may be easing.

The Fed has been working to control inflation, which has been above its target rate of 2 percent for some time.

Yesterday’s lower-than-expected PPI would have created high expectations for a lower-than-expected CPI report.

But the actual figures released this morning were largely in line with forecasts, which reduced the likelihood of a 50 basis point rate cut in September and softened the blow to the dollar.

While the euro gained strength against the dollar, Sterling had a mixed response.

Its choppy price action was also due to a less-than-expected rise in UK headline inflation in July, along with a bigger-than-expected fall in services inflation.

While GBP/USD ended slightly lower today, its technical picture looks cautiously bullish.

Welcome to TA of the Day (TAOTD)! 👋

Let’s focus on the current technical configuration of GBP/USD based on the 4-hour chart:

GBP?USD 4H Chart by TradingView

📈 Technical analysis of the 4-hour GBP/USD chart

Using the technical analysis concepts covered in our forex course, let’s analyze GBP/USD.

Simple mobile environments:

• 20 period SMA: Positioned around 1.2800. The price is currently afloat around this level, indicating potential short-term consolidation and an area of ​​interest. The slope is upreflecting recent bullish momentum in the short term.
• 50 period SMA: Positioned around 1.2761. The price is above this level, indicating support for medium-term bullish momentum. The slope is upsuggesting a potential continuation of the upward trend.
• 100 period SMA: Positioned around 1.2806. The price is almost this level, indicating that it is an immediate resistance or support level. The slope is neutralsuggesting a balance between buying and selling pressures over the medium term.
• 200 period SMA: Positioned around 1.2827. The price is easy below this level, which indicates a long-term bearish momentum, still has some influence, but the recent uptrend is challenging it. The slope is neutral slightly downwards, indicating persistent bear pressure.

Relative positioning of mobile media:

• The 20 period SMA it is above THE 50 and 100 period SMA but lower than 200 period SMAindicating a short term climbing impulse in a wider mixed trend.
• The 50 period SMA it is below THE SMA with 100 and 200 periodsconfirming that medium and long-term trends are still under bearish pressure.
• The 100 period SMA it is below THE 200 period SMAindicating that the long-term bearish trend is still holding, although recent price action is testing this trend.

Williams %R (14):

• Williams %R: The current reading is -36.99 which is in the middle range, neither overbought nor oversold.
• Recent swings suggest indecision in the market.

🕵️ Key observations

Price action:

Let’s analyze the recent GBPUSD price action based on the chart:

1. Sharp Rally: In early to mid-July, there was a significant upward move, with the price rising from around 1.2650 to a peak near 1.3050. This represents a strong optimistic phase.
2. Peak Rejection: Upon reaching the high around 1.3050, there was a clear rejection, indicated by a long upper wick on the candle above.
3. Corrective phase: Following the peak, the price entered a corrective phase characterized by a series of lower highs and lower lows. This correction brought the price down to around 1.2650 by early August.
4. Volatile swings: During the corrective phase, there were several volatile fluctuations, with the price oscillating between support and resistance levels.
5. Double Bottom Formation: In early August, the price formed what appears to be a double bottom around the 1.2650 level, suggesting a potential reversal point.
6. Recent recovery: After the double bottom formation, there was a notable recovery. The price has bounced back above all key simple moving averages (SMAs).
7. Overcoming SMAs: The recent bullish move has seen the price break decisively above the 20, 50, 100 and 200 SMAs, indicating fresh bullish momentum.
8. Current Consolidation: Over the past few days, price appears to be consolidating just above the 200 SMA, with small-bodied candles indicating some indecision.
9. Rejecting higher levels: The latest candles show long upper wicks, suggesting some rejection or resistance at higher levels around 1.2850.

Support and resistance levels:

• Support: Immediate support is around 1.2800 (20-period and 100-period SMA) and 1.2761 (50-period SMA).
• Resistance: Immediate resistance is around 1.2827 (200-period SMA) and 1.2850 (recent highs).

Mobile media:

• The 20 period SMA currently acting as support in the short term, while 200-the SMA period provides significantly resistance in the long term.
• The price is currently over all SMAssuggesting an optimistic bias in the short and medium term.

🤔 Potential commercial scenarios

Is GBP/USD a buy or a sell?

The following business scenarios are provided for educational purposes only. As they do not include complete risk management practices, they are not intended to serve as actual trading recommendations, but only food for thought to help you generate your own trading idea.

Long bias:

• Point of consideration: Consider entering a long position if price finds support near 1.2800 (20-period SMA and 100-period SMA) or 1.2761 (50-period SMA) and shows signs of a rebound such as a bullish candlestick pattern or a Williams R % reversal from neutral to oversold territory. Furthermore, a break above the resistance level at 1.2850 would indicate a potential continuation of the uptrend.
• Invalidation point: Consider setting a stop-loss below the support level around 1.2700 to manage the risk.
• Potential target: Look for a move towards 1.2900 and above if the uptrend resumes.
• Motivation: Targeting 1.2900 is based on previous resistance level and psychological significance. If the price manages to break above 1.2850, it would indicate strong upside momentum and the possibility of further upside.

Short bias:

• Point of consideration: Consider entering a short position if the price fails to hold the support level at 1.2800 (20-period and 100-period SMA) and shows signs of bearish momentum such as a strong candlestick pattern of decrease.
• Invalidation point: Consider setting a stop-loss above the recent high of 1.2850 to manage risk. This level is crucial because a break above it would invalidate the bear setup.
• Potential target: The initial target could be the support level around 1.2700. If the bearish momentum continues, look for more dips towards 1.2650 or below.
• Motivation: Targeting 1.2700 initially is because it is a psychological and historical support level. If the price breaks below this level, it would signal further bearish momentum and the potential for a more significant decline towards the next support level at 1.2650.

📝 Summary of TAOTD

• Current position: The price has been in an uptrend since early August, with higher highs and higher lows. Recently, the price started consolidating around the 1.2800 level, which coincides with the 20- and 100-period SMAs, indicating a potential decision point.
• Trend: The short-term trend appears to be bullish, with prices above the 20-, 50-, and 100-period SMAs. However, the long-term trend remains under pressure, with prices close to the 200-period SMA.
• Key levels: Support at 1.2800 (20-period and 100-period SMA) and 1.2761 (50-period SMA) and resistance at 1.2827 (200-period SMA) and 1.2850 (recent highs).
• momentum: Williams %R indicates that the market is neutral with no overbought or oversold conditions.

The technical picture is cautious climbing. 🐂

This market structure suggests that although the pair experienced a significant correction from mid-July to early August, it is now showing signs of potential trend reversal.

Recent price action confirms this. After a strong uptrend, a corrective move and a potential double bottom chart pattern formation, the pair is now showing signs of recovery.

Break above all SMAs and the formation of higher lows are bullish signals and provide an upward bias. However, the resistance around 1.2850 and the consolidation phase indicates that the market is at a critical situation.

👀 Keep an eye on…

Traders are likely to be watching closely to see if this rally can sustain and break above recent highs, or if it will face further resistance and possibly reverse.

You should be cautious as the market structure is currently transitionand wait for clear breakouts or breakdowns to confirm the next significant move.

The key levels to watch are most recent around 1.2850 as resistance and cel SMA cluster (especially 20 SMA at 1.2800) as support.

A convincing break above 1.2850 could signal a continuation of the upward trendwhile a drop below the SMA or a clear breakdown below 1.2750 would indicate that the recent up move was a correction in a larger downtrend.

When analyzing the markets, it is essential to consider several factors beyond technical analysis, including fundamental analysis, market sentiment, market correlations and scheduled news events.