GBP/USD carving out

GBP/USD carving out a bull flag ahead of BOE Super Thursday.

GBP/USD extends Tuesdays bounce above 1.3900 amid weaker US dollar.

The cable carves out a bull flag formation on the daily sticks.

UK/ US PMIs eyed, BOE decision and US NFP could yield an upside break.

GBP/USD is heading towards July highs at 1.3985, extending its bounce from near the 1.3875 region

The bulls remain in control above 1.3900 amid a broadly softer US dollar, divided between looming coronavirus worries, progress on US infrastructure bill and dovish Fed expectations.

On the GBP side of the equation, falling covid cases in the UK and its relative success in the vaccination campaigns underpin the pound.

Meanwhile, the GBP bulls also cheer the Brexit optimism, especially after the European Union (EU) has backed off a threat of imminent legal action against the UK over breaches of the Northern Ireland (NI) protocol of the Brexit agreement as the two sides try to work through their differences.

BOE in focus

The immediate focus is now on the US ADP and ISM Services PMI data while the UK Final Services PMI could also offer some trading incentives to the pair. However, the main event risks for the cable are the BOE ‘Super Thursday’ and Fridays NFP report.

The UK central bank is likely to maintain its monetary policy settings while the focus will be on the economic forecasts, with rising concerns on inflation, which may prompt the BOE to hint at tapering sooner than expected. However, amidst ongoing certainty over the economic recovery, in light of the Delta covid variant flareups, the central bank could refrain from offering any hawkish signals.

GBP/USD technical outlook

With the recent rally that followed a brief consolidative mode, GBP/USD price has taken the shape of a bull flag.

The upcoming events are likely to determine whether the cable will yield the upside breakout from the bullish continuation formation or lead to a pattern failure.

GBP bulls need a firm break above the falling trendline resistance at 1.3958 for the bull flag validation.

Meanwhile, acceptance below the falling trendline support at 1.3857 will revive the bearish interests, with the corrective downside to resume towards the 21-Daily Moving Average (DMA) at 1.3826

The 14-day Relative Strength Index (RSI) is pointing north above the midline, supporting the potential move higher.