GBP/USD testing key uptrend, eyeing bearish breakout back to 1.3600 ahead of busy week of UK data

• GBP/USD is consolidating just above 1.3650, a tad lower on the day, ahead of a busy week of UK data.
• The pair is testing a key uptrend, a break below which could open the door to a move to 1.3600.

Amid a lack of tier one US data releases or Fed speakers (who are in blackout ahead of the January 25-26 meeting) this week, GBP/USD may well be driven more by the sterling side of the equation this week. Indeed, the latest UK labour market report is out on Tuesday, followed by December Consumer Price Inflation data on Wednesday, ahead of December Retail Sales on Friday. The data will help shape expectations for whether the BoE will hike again in February (money markets are suggesting this is a strong likelihood), with these expectations also set to be directly shaped by remarks from Governor Andrew Bailey himself on Wednesday. BoE’s Catherine Mann, who has in recent months erred more on the dovish side, will also speak on Friday.

Ahead of a busy week of UK economic/central bank events, GBP/USD is consolidating just above 1.3650, a tad lower on the session. Trading conditions have been thin and subdued thus far this Monday give the closure of US markets for Martin Luthar King Jr Day. The recent pullback from last week’s highs at 1.3750, which saw GBP/USD fail to break above its 200DMA, has not yet been deep enough to warrant suggestions that the pair’s bull run from the December lows is over. Indeed, the pair is currently probing but is yet to break below an uptrend linking the January 3, 6, 10 and 11 lows.

Should this trendline hold, that bodes well for a potential recovery back to the north of 1.3650. But should the US dollar, which weakened broadly last week as crowded long-positioning was squeezed, see some recovery this week, triggered perhaps by Fed tightening bets or perhaps by further losses in equities, cable could well be headed lower. Short-term bears would initially look for a test of the 1.3600 level, an important area of both support and resistance in recent months.