There were no UK economic releases today, so the pound is trading on Friday without domestic support, leaving developments in the United States to determine the pair's direction. Yesterday's UK economic data was fairly positive, but it failed to support the pound.

The main event is still ahead. The US Producer Price Index (PPI), which measures the prices businesses receive for their goods, will be released today. In September, the index increased by 1.3% month over month, its largest rise since March 2022, against a forecast of 0.5%. At the time, the dollar received only temporary support. This time, the market expects the monthly increase to slow to 0.4%. Particular attention is also being paid to the index excluding food and energy prices, known as core PPI, which excludes the most volatile price components. It increased by 0.7% in September, while the forecast for October stands at 0.3%.

Following the release, Susan Collins and Michelle Bowman will speak, followed by Mary Daly. Collins previously described interest rates as moderately restrictive, meaning that they were slowing economic activity without applying excessive pressure. Daly, however, stated yesterday that further monetary policy tightening would be necessary. This represents a notable shift toward a more hawkish tone, and similar comments today could increase pressure on the pound.

Momentum

GBP/USD is currently trading near 1.3231, within a range between 1.3214 and 1.3245. A move beyond either boundary is considered a breakout, but a brief test of a level is not sufficient. The price needs to consolidate beyond it, meaning that several consecutive five-minute candles must close above or below the relevant level. Otherwise, traders risk encountering a false breakout, after which the price may return to the previous range.

The upper boundary is at 1.3245. Consolidation above this level would open the way toward 1.3275 and then 1.3301. Overnight, the price reached only 1.3242, coming close to the resistance level but failing to break above it. This level has already demonstrated its significance as resistance. The first target at 1.3275 coincides with the upper boundary of yesterday's rebound near 1.3274, where selling pressure often emerges. There are no UK economic releases today, and yesterday's 0.7% quarterly GDP growth failed to support the pound. Therefore, there is little justification for such a strong upward move, making this scenario less likely.

The lower reference level is 1.3214. Consolidation below it would open the way toward 1.3183 and then 1.3161. This is considered the primary scenario. The fundamental backdrop remains favorable for the US dollar, Daly adopted a more hawkish tone yesterday, and the pound lacks domestic catalysts. Three days ago, the pair was trading near 1.3316. Yesterday's rebound reached only 1.3274, and the price is now near 1.3231. Approximately 17 points remain before the next key level, while the low near 1.3221 must be broken first. If the price moves below this level and consolidates there, the decline could accelerate. Entering a position on the first test of the level is not advisable.

Mean Reversion

Two levels are important here: 1.3245 and 1.3219. The upper reference level of 1.3245 coincides with the breakout level for long positions, so particular caution is required. The same price level serves both as a potential signal for further upside and as a reference point for a possible reversal to the downside. It is impossible to determine which scenario is developing based on the first test alone.

If the price consolidates above 1.3245, the upward breakout scenario is confirmed, and short positions should be avoided at this level. However, if the price reaches 1.3245, fails to continue higher, and quickly returns below it, short positions could be considered, with a stop-loss above 1.3251 and a small additional buffer. This scenario is more likely if the US PPI comes in close to expectations and the market retraces after its initial reaction. The distinction between these two scenarios may become clear within just a few minutes, so it is preferable to wait rather than trade the initial reaction around this level.

The lower reference level of 1.3219 is five points above the breakout level of 1.3214 and almost coincides with the low near 1.3221. This indicates that buyers have already entered the market in this area. The strategy is as follows: the price declines toward 1.3219, fails to consolidate below it, and moves back above the level. In this case, long positions could be considered, with a stop-loss below 1.3214 and an additional buffer. Such a rebound is more likely if Fed officials refrain from making further hawkish comments and the market begins taking profits toward the end of the week. However, if the price consolidates decisively below 1.3214, the rebound scenario is invalidated, and the downside breakout scenario takes precedence.