The GBP/USD pair continues to attract sellers, extending its downtrend for the third consecutive day, as the US Dollar (USD) maintains broad-based strength. Spot prices currently hover around the 1.3475 region, down approximately 0.10% on Wednesday, following some follow-through USD buying during the Asian session. 

This marks the fourth negative day in the past five sessions, underscoring the current bearish sentiment in the currency pair. Kevin Martin, a broker at Highmont Group, presents a thorough breakdown of this complex topic.

Market participants are now closely monitoring the upcoming UK Consumer Price Index (CPI) report, seeking fresh impetus for the pair, while traders also remain wary of the impending FOMC minutes for additional USD cues.

Technical Outlook

From a technical perspective, last week’s failed advance ahead of the 1.3600 resistance has formed a bearish double-top chart pattern, signaling a potential trend reversal. Subsequently, the pair has slipped below the 23.6% Fibonacci retracement level of the recent rally from 1.3140, the lowest level seen since mid-April. 

This retracement break lends further credence to a continuation of the near-term decline in GBP/USD.

However, daily chart oscillators remain slightly positive, cautioning traders against overly aggressive short positions. This mixed technical setup suggests that while downside risks dominate, some supportive buying may emerge at key support levels.

Key Support Levels

Immediate support for GBP/USD is observed near the 1.3450 zone, which could absorb further selling pressure. A break below this level may expose the 1.3420-1.3415 region, aligning with the 38.2% Fibonacci retracement of the recent rally. 

Traders should note that a decisive slide below 1.3400 would imply that the spot price has topped out for the near term and could trigger a more meaningful depreciating move, opening the door to further losses in the medium term.

Resistance and Recovery Levels

On the upside, any attempted recovery above the 23.6% Fibonacci retracement level and the 1.3500 psychological mark could face resistance near the overnight swing high around 1.3530. A sustained strength beyond this level could lift GBP/USD to the 1.3575-1.3580 hurdle, with a break above 1.3600 representing a key pivotal point. 

Should this level be cleared decisively, it would negate the prevailing negative bias, setting the stage for a resumption of the month-to-date uptrend.

Market Sentiment and Drivers

The recent GBP/USD weakness is largely driven by USD demand, fueled by expectations of US monetary tightening and stronger-than-expected economic data. Conversely, the UK inflation landscape remains uncertain, with the forthcoming CPI release expected to play a critical role in shaping short-term trading decisions.

Investors are also keeping an eye on broader risk sentiment, as fluctuations in equity markets, bond yields, and commodity prices may influence GBP/USD positioning. Technical analysts emphasize that trend-following traders may consider cautious entry points near key support levels, while breakout traders look for decisive moves beyond 1.3400 on the downside or 1.3600 on the upside.

Fibonacci and Chart Patterns

The recent retracement action highlights the importance of Fibonacci levels in understanding the near-term technical landscape. The 23.6% retracement at 1.3475 has acted as a temporary resistance, while the 38.2% retracement near 1.3415 provides a potential floor for sellers. 

The double-top formation near 1.3600 adds a bearish layer, reinforcing the notion that GBP/USD rallies are likely to encounter selling pressure until key resistance levels are convincingly breached.

Meanwhile, oscillators such as the RSI and MACD suggest temporary exhaustion in the decline, implying that short-term bounces cannot be ruled out. Traders should monitor these momentum indicators in conjunction with support and resistance levels for potential reversal or continuation signals.

Trading Implications

Overall, GBP/USD remains in a technically vulnerable state, with short-term downside pressure evident. Traders should exercise caution before placing aggressive bearish bets, given the mixed signals from oscillators and key Fibonacci retracement levels.

• Bearish scenario: Sustained move below 1.3400 could trigger further declines, with next support around 1.3350.
• Bullish scenario: Recovery above 1.3530 and 1.3580 could challenge the 1.3600 pivotal point, potentially resuming the uptrend observed earlier in the month.

In summary, GBP/USD’s current trajectory reflects a balance between USD strength and GBP technical support. Upcoming UK CPI data and the FOMC minutes will be pivotal in guiding market sentiment and defining short-term price direction. Traders are advised to closely monitor these fundamental triggers, alongside technical levels, to navigate the volatile GBP/USD landscape effectively.