GBPUSD is forming an uptrend on its 1-hour forex chart, as the recent lows can be connected by an ascending trend line. 

In addition, the long-term exponential moving average has been holding as a dynamic support area and another test seems to be taking place.

A bounce off support around the 1.5300 to 1.5350 area could lead to another climb to the previous highs at 1.5500 or perhaps the creation of new highs. Stochastic is moving up anyway, confirming that pound bulls are in control of the game.

However, a break below the moving average and the trend line support could indicate that the uptrend is over and that a reversal is bound to take place. This could take GBPUSD back down to the next area of interest around 1.4900 to 1.5000. A move below this key support region could lead to a drop to the 1.4600 lows.

Based on central bank biases, the path of least resistance could be to the upside, as the BOE has sounded more optimistic compared to the Fed. Minutes of the latest BOE meeting showed that the UK central bank is confident that the economy can achieve its inflation target soon and that they could afford to hike rates at some point. Meanwhile, the Fed has sounded a bit cautious in their latest statement, downgrading their outlook for growth and employment.

Event risks for this trend setup today include the release of the UK and US manufacturing PMI readings. For the UK, an increase from 54.4 to 54.6 is expected while the US could also show a climb from 51.5 to 52.1. Both economies have been printing a few disappointing reports from time to time though, and a downside surprise could be seen for either one.

By Kate Curtis from Trader’s Way