Pound Sterling vs US Dollar falls back after US bank rescue means Fed will almost certainly hike interest rates on Wednesday.

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• Pound Sterling vs US Dollar falls back after US bank rescue means Fed will almost certainly hike interest rates on Wednesday.
• Bearish two-bar reversal pattern suggests short-term downside pressure for GBP/USD.
• JOLTS Job Openings the main data release ahead of May’s FOMC meeting.

The Pound Sterling (GBP) continues bleeding against the US Dollar (USD) during the European session on Tuesday, as USD gains support from the news of the emergency rescue of First Republic Bank over the weekend. This calms markets and suggests the Federal Reserve is much more likely to hike rates at its meeting concluding Wednesday.

From a technical perspective, the GBP/USD pair continues to pull back from new year-to-date highs in the 1.2580s formed on April 28, and forms a two-bar reversal pattern that bodes follow-through lower in the very short-term, though the overarching trend remains bullish.

GBP/USD has been a broad sideways trend since the beginning of the year within a longer-term uptrend that began at the September 2022 lows. Despite the volatile ups and downs of recent months, the pair did manage to make new higher highs in the upper 1.25s in late April and the overall trend remains marginally bullish. Thus, Pound Sterling longs are marginally favored over shorts.

GBP/USD: Daily Chart

That said, a pullback may be unfolding at the moment after a two-bar bearish reversal pattern formed at the recent highs. Two-bar reversals are fairly reliable patterns which occur when a long green full-bodied candle that makes new highs as formed on April 28 is immediately reversed the following day by a long red-down candle of a similar length. They are bearish short-term signals.

It is possible the two-bar pattern will now be followed by a leg lower which could see GBP/USD retest the 1.2350 April-range lows.

Given the dominant trend remains bullish-to-sideways, however, pressure to the upside is likely to re-emerge, and could see the price recover and rally, before breaking to fresh highs.

A decisive break above the year-to-date 1.2583 highs of April 28, would probably lead to a continuation higher to the next key resistance level at circa 1.2680.

Decisive breaks are usually characterized by moves that begin with a strong green daily bar that breaks above the ceiling or resistance level, with price closing near the highs, or, alternatively by three green consecutive bars forming that break above the ceiling or resistance level. These provide added confirmation that the break is not a ‘false break’ or bull trap.

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