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The pound has dropped to a Fibonacci retracement level and daily support

The Bank of England testimonies to Parliament last week put a top on the GBPUSD as did the US dollar index finding support after the ECB rate and PEPP decision. Taking a holistic view there is a higher probability that the US dollar does take a bigger dip ahead of the FOMC meeting in a couple of weeks’ time, and the UK economy boosts the strength of the British pound.

GBPUSD forex analysis

The GBPUSD is starting the week with a mixed relative strength against the other currency pairs. Today the Bank of England Director of Markets speaks on the future of central bank balance sheets but there is little else within the economic calendar for the rest of the day that will directly influence the pound. As the week progresses there are data points where the volatility should move the needle for the GBPUSD. Starting with Tuesdays UK Jobs Report with expectations of the unemployment rate are for a fall to 4.6%. Then on Wednesday, there will be inflation data with market analysts predicting a jump in the year-on-year CPI to 2.9% from 2.0%. The consensus is that the UK will see CPI up to 4.0% by the end of the year and that the inflation rise will be temporary. Then at the end of the week, we receive UK retail sales data on Friday with expectations for a modest rise to 0.5% month-over-month. This would be bullish for the pound as it would be the start of a recovery from the -2.5% decline seen in July. Expectations are bullish due to the big leap in credit card spending in August.

The pound was the 2nd best performing G10 currency this week helped by the move

late Wednesday into Thursday after BoE testimony to parliament revealed an

apparent building consensus for hikes next year.

The ActivTrades sentiment indicator shows that more traders on the platform are becoming bearish in the currency pair as the US dollar found a bid into the back of last week. Against the EURGBP there is a very extreme short sentiment position with 80% of the traders thinking the pound should rise against the euro.

At the London open the GBPUSD was trading around the weekly pivot and the daily 50 ema with confluence coming in from the 1.3800 price level plus the 50% retracement from the recent swing low to swing high. With the price action pushing against the momentum, it is likely that we test the 1.3786 and the 61.8% Fibonacci level as there is also a decent market structure there too which should act as support. On the daily chart, the main support is at the base of the Drop-Base-Rally that formed the swing low on the 8th of September last week.

On the hourly chart that support is highlighted by the horizontal green line and the small market structure at the 61.8% fib. There is one last level of support from the daily 200 ema which currently resides at 1.376 which is confluent with the 76.40% deep retracement too.

Overall, the GBPUSD is looking like it will find some support,

but the direction will be dependent on the US dollar index finding resistance around this 50%-61.8% retracement on the daily DXY chart.

Any bullish trade ideas on the GBPUSD will be invalidated for me with a break of the 1.3730 price level as we would have to wait for a new bullish market structure to form.