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GBP/USD Faces Downside as Supply Zone Signals Possible Reversal

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The GBP/USD pair is trading with a mild negative bias near 1.3370 during Tuesday's London session, as the British Pound (GBP) struggles to gain momentum. Comments from Bank of England (BoE) policymaker Jonathan Greene have raised concerns about potential price pressures, with Greene noting that strong UK consumer spending could further fuel inflation. This has kept the pair under pressure, especially after encountering a key supply area last week, where the price now seems poised for a possible reversal.

At the same time, less dovish remarks from Federal Reserve (Fed) Chair Jerome Powell have provided support for the US Dollar (USD), dragging the GBP/USD pair lower. Powell’s comments, hinting at a more cautious approach to rate cuts, have boosted the Greenback, creating headwinds for the Pound.

Investors are now bracing for the release of the US September ISM Manufacturing Purchasing Managers Index (PMI) data later today, as well as speeches from Fed officials Raphael Bostic and Lisa Cook. These events are likely to provide further insights into the Fed’s future policy direction and could impact the pair's next move.

From a sentiment perspective, the Commitment of Traders (COT) report reveals that retail traders remain extremely bullish on the GBP/USD pair, while larger institutional players are adopting a more cautious stance. This divergence in sentiment could signal a potential shift, with smart money seemingly positioning for a reversal rather than continuing the bullish trend.

Technically, the pair is struggling to break past the supply zone identified last week, indicating a possible downward correction. If the GBP/USD fails to hold above 1.3370, the pair could see further losses, especially if the upcoming US data supports the Greenback.

In conclusion, GBP/USD faces downside risks in the near term as investors weigh the impact of potential price pressures in the UK and a strengthening US Dollar. With key economic data and Fed speeches on the horizon, the market is preparing for possible volatility. Retail traders remain bullish, but caution from institutional players suggests a reversal could be on the horizon. Traders should closely monitor the supply area for signs of a sustained bearish move.

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