GBP/USD Daily Chart Analysis – 2024-08-21

The GBP/USD pair surged to a fresh 2024 high of 1.3054 during Tuesday’s trading session as the U.S. dollar continued to lose momentum ahead of the Jackson Hole symposium. This latest push higher in cable has brought the pair to a critical juncture, with traders closely watching for signs of a potential bull trap. The key level to monitor is the previous year-to-date (YTD) high of 1.3044. A failure to maintain this level, particularly with a daily close below it, could signal a false breakout and the possibility of topside exhaustion. Such a scenario would leave GBP/USD vulnerable to a reversal, potentially pulling the pair back towards the 1.30 level or lower.

The formation of a bull trap is particularly concerning for traders who have been bullish on sterling. A false break, where the price breaches a key technical level only to quickly reverse, is often a strong indicator of an impending reversal. In this case, a daily close below 1.3044 would confirm the false breakout and increase the likelihood of a deeper pullback. An even more bearish signal would emerge if the pair closes below the 1.30 psychological level, which has proven to be a significant resistance point over the past two years. Given that the dollar is currently in oversold territory, chasing further gains in GBP/USD could be risky, especially as broader market conditions remain uncertain.

Adding to the bearish outlook, risk assets have begun to retreat, with the S&P 500 slipping below the 5600 mark. This pullback in equities may act as a barrier to further upside in GBP/USD, as investors become more cautious ahead of the Jackson Hole symposium. The symposium, which will feature a key speech from Federal Reserve Chair Jerome Powell, is likely to set the tone for the markets in the coming weeks. While many traders are positioning for a dovish message from Powell, the risks are tilted towards disappointment. Should Powell strike a less dovish tone than expected, it could trigger a recovery in the dollar, further pressuring GBP/USD.

Technically, the 1.3044-1.3050 zone is now a critical resistance area. A daily close above this range would be required to negate the downside risks associated with the potential bull trap. However, if GBP/USD fails to close above this range, it could open the door for a correction. Immediate support levels to watch include the 40-hour moving average at 1.2960 and the 100-hour moving average at 1.2910. A break below these levels would confirm a shift in momentum and potentially lead to a deeper retracement.

In summary, while GBP/USD has achieved a new high for 2024, the risk of a bull trap looms large. The pair’s ability to hold above 1.3044 on a daily closing basis will be crucial in determining whether the recent gains can be sustained or if a reversal is on the horizon. With the Jackson Hole symposium on the horizon, the broader risk environment and the tone of Powell’s speech will likely be the key drivers for the next directional move in GBP/USD.