Daily Market Recap – GBPUSD Downward pressure remains, $1.36 support will be decisive

GBPUSD initially retreated on Friday along with most other major currency pairs following hawkish comments from some Fed FOMC members before regaining some ground and ending the session in the green.

The dollar rallied on Thursday after Kansas City Fed President Esther George (voting for the 2022 FOMC) and her counterparts at the St. Louis Fed, James Bullard (voting for the 2022 FOMC) and Dallas Fed, Robert Kaplan (voting for the 2023 FOMC), told CNBC that they would prefer the Fed to reduce its asset purchases (tapering) sooner than later.

The question investors continue to ask is whether the Fed will begin tapering by the end of the year or wait until next year. Market participants will therefore scrutinize the rhetoric of Jerome Powell's speech in Jackson Hole this Friday at 4:00 pm (CEST), although the Fed chairman is not expected to lift the veil on the central bank's plans until the next FOMC meeting on September 21-22.

Despite the bullish candlestick recorded on Friday, the outlook remains bearish for the GBPUSD as more and more FOMC members seem to favor starting tapering soon.

In addition, the market has ended its “reflation” trades that allowed cyclical assets to outperform the markets in the fourth quarter of last year and the first quarter of this year. Since late spring, these assets have been underperforming. Cyclical currencies GBP, EUR, CAD, AUD, and NZD are underperforming the other major currencies (USD, CHF and JPY) and the cyclical sectors of the equity market are underperforming the growth sectors.

From a technical perspective, pressure remains high on the GBPUSD as evidenced by lower and lower highs since late spring. However, support at $1.36 continues to hold which prevents an extremely bearish bias on the exchange rate.

Support at $1.36 and the bearish oblique that runs through the recent highs together form a descending triangle. Support at $1.36 will therefore be crucial, as a breakout to the downside would signal a medium/long-term bearish reversal in the GBPUSD.

(Chart Source: Tradingview 29.08.2021)

The outlook would be bullish again if the triangle were to break out from the top. A return to the May high of $1.4240 would then be expected. Traders may look to play on this pattern and short the pair at the current rate while keeping an eye on the price action in the run-up to the 1.37 mark.Support & Resistance Levels:

R3 1.4250

R2 1.4000

R1 1.3850

S1 1.3679

S2 1.3600

S3 1.3508

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.