GBP/USD Forecast: Capped by key confluence line and awaiting Hammond's hammer

  • The GBP/USD is trading around $1.3880 ahead of the UK Spring Budget and US Inflation.
  • The pair is capped by the downtrend resistance line, and will soon have to make a choice.

The GBP/USD is trading in a relatively narrow range between $1.3874 and $1.3912. The trading week opened on a quiet note on Monday with very few indicators. This is about to change quite soon. 

The British Chancellor of the Exchequer Phillip Hammond will deliver his Spring Budget. A rise in tax collection has buffered the government's coffers, and Hammond is likely to present a more optimistic view of the economy going forward. Britain may be nearing the end of austerity according to data provided to the press. Earlier, the OECD estimated that British growth would trail that of other countries.

More: Philip Hammond is set to deliver fresh wind of optimism in Spring Budget statement

The appearance in parliament will be followed by estimates for the cost of Brexit under different scenarios. The Office for Budget Responsibility will lay out the potential damage to the economy, and this may not be very helpful to Sterling. Earlier, Chief EU Negotiator Michel Barnier cooled down expectations for an ambitious post-Brexit deal by saying that May's speech closed many doors to Europe.

The main event for broader markets is the publication of the US inflation report. Core CPI is expected to remain at 1.8% YoY and any deviation may impact the Fed's dot-plot and the US Dollar. 

More: US inflation preview: Determining the dot-plot - 3 scenarios

GBP/USD Technical Analysis - Approaching uptrend resistance

The $1.3935 level is the meeting point of the March 6th high and the downtrend resistance line that stretches back from January. So far, the pair respected this cap. A break will open the door to $1.4000, the round number, and then $1.4070, the high point seen on February 26th.

To the downside, $1.3860 served as support in mid-February. A drop leads the way to $1.3770, a low point that was recorded in both early February and then on March 8th. Further below, the March 1st low of $1.3710 is the next line to watch.

The RSI is marginally under the 50 line, and Momentum is a tad negative. The bearish sentiment is not that significant, and a move above the $1.3935 level mentioned before will turn the tables. 

 

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