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GBP/USD just broke above a trend line resistance!

Will it lead to a reversal for the pair? Or are bears just taking a breather?

I’m checking out Cable’s daily chart for clues.

GBP/USD: Daily

GBP/USD Daily Forex Chart

GBP/USD Daily Forex Chart

In case you missed it, markets are ditching the U.S. dollar for higher-yielding bets after last week’s FOMC event led traders to price in a not-so-hawkish tightening schedule for the Fed’s next meetings.

GBP/USD has found support from 1.1800 and is now trading closer to the 1.2300 area.

As you can see, 1.2300 is already above a descending trend line that hadn’t been broken since late February.

Have the tides changed for GBP/USD? The Tweezer Top pattern on the daily chart says “Eh, maybe not.”

Note that Cable saw the Tweezer Top near the 1.2250 area that lines up with an area of interest from May to July. What’s more, a bearish divergence has popped up on the daily time frame.

This week’s Bank of England (BOE) decision may make or break GBP/USD’s upside “breakout.”

Recall that BOE has committed to act “forcefully” to bring inflation down. Markets think that inflation hitting a 40-year high of 9.4% in June should warrant some “forceful” action.

Specifically, traders expect Gov. Bailey and his friends to raise interest rates by 50 basis points to 1.75%. This would mark the fastest single increase since 1995!

I’ll also keep close tabs on BOE’s growth, employment, and inflation projections.

If BOE believes that inflation will rise further in the next couple of months, then markets could price in even more rate hikes and push GBP higher against its counterparts.

GBP/USD could sustain its upside trend line breakout and head for areas of interest near 1.2600 or even 1.3000.

But if BOE members highlight their growth and employment concerns, or if they expect inflation to slow down to their comfort levels, then GBP could take hits across the board.

GBP/USD could extend its downtrend and revisit the 1.2000 or 1.18000 previous support levels.

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