Three weeks after that CPI-induced USD correction, market sentiment seems to be slowly shifting back in favour of the dollar. There are both technical and fundamental signs that the USD may soon rebound. This week, Fx market action is likely to be greatly impacted by the scheduled calendar events, mainly Powell’s speech tonight (19:30 CET) and Friday’s Nonfarm Payrolls report.

In this context, the GBPUSD looks interesting for a fresh short position as it has reached some attractive levels on the chart. A break of key support should give rise to a larger bearish move down, likely taking GBPUSD back near the 1.15 area.

GBPUSD got rejected from levels above 1.20 yesterday and is now making an attempt at a key intraday support. A bearish candle formed on the daily chart during yesterday’s sessions, which also took the pair below 1.20.

GBPUSD now trades near 1.20 in an ascending channel formation, which can be seen on the 4h chart. While cable is still playing with the 1.20 level, yesterday’s bearish daily candle gives hope that a top may be in place. Still, one won’t be confirmed until the current ascending channel is broken (see chart).

The key zone near the support trendline is located around the 1.19 level. Thus, a bearish break below this 1.19 support is likely to be the trigger of a bigger move down in the current context.

There are few support levels until the 1.1650 zone, which makes it likely that 1.1650 will be reached if GBPUSD starts falling from here. The next important support is 1.15, which would also be an achievable target under this scenario (chart below).

Fundamentals check: Powell’s speech tonight and NFP Friday could be the trigger

Fed Chairman Powell is in focus tonight. He is scheduled to give a speech on the economy (19:30 CET) and will attract a lot of attention, especially in the current context of so much speculation about a Fed “pivot”. He is likely to retain the hawkish tone and push back against rumours that the Fed will be cutting rates next year. This should be hawkish, and even if it doesn’t prove a big bullish event for the USD, Powell’s speech should at least offer some moderate support for the dollar.

And if Powell is very hawkish, he may cause a new bull leg in USD. This could be the event that helps to break the key support zone on some USD pairs like GBPUSD discussed above.

The other big event, the Nonfarm payrolls report on Friday, should also help to keep the dollar broadly supported, barring a big miss in expectations. The consensus forecasts put the NFP at 200K and the unemployment close to the prior month of 3.7%. If the jobs reports come in close to those expectations, then there is hardly a reason for the USD to extend the correction down. In fact, quite the opposite would be more likely, once some key technical zones are broken. For GBPUSD, that technical zone seems to be 1.19. Once it breaks, a further move down should be much easier to come by.

Trade Plan:

Entry:

• Wait for a break below the support line of the channel (currently around 1.19);
• Thus, a break below 1.19 can be the entry point

Stop loss:

• The stop should be above 1.20; 
• Or above the most recent swing high on 4H chart (at the moment that’s around 1.2060)

Targets:

• 1.1650
• 1.15