This currency pair finally broke down to make a new long-term low price yesterday, but it is not clear that this was a decisive breakdown. In the Forex market, breakouts are often not decisive, and trends can be unreliable and hard to find. Having said that, this is one of the currency pairs that has historically shown some propensity to trend reliably.
It is important to note that when a breakdown is driven by a relevant central bank meeting, as was the case here with the Fed’s hawkish tilt last week, it is quite likely to be important, as these fundamentally driven moments can be the start of major trend changes or reversals.
Have we reached a decisive moment between bulls and bears?
Why is the current moment full of promise for traders of this currency pair? Because after mostly trading sideways for such a long time, we are seeing signs that things are becoming clearer, clarifying the outlook for this currency pair, both in terms of the British Pound and the US Dollar.
The British Pound does not have much at stake right now even though the Bank of England just held a policy meeting. The voting on a rate hike was slightly more hawkish than expected, but there was a strong majority in favour of holding. The vote hasn’t done much to hold up the Pound.
On the side of the Dollar and general market sentiment, the US Dollar Index is firmer and is continuing to rise, making another consecutive 13-month high price yesterday (as the US Dollar Index).
GBP/USD Technical Analysis
We saw a clear bearish breakdown below the range which was dominant for over one month now, between about $1.3300 and $1.3500. The price yesterday to make a new 6-month low price at $1.3140 and looked as if it had made a decisive breakdown below the pivotal former support level at $1.3164.
The problem for bears who were hoping for a clearer directional movement here to get on board with, is that the price has now rebounded as the US Dollar weakens a bit, but more importantly, as risk-on sentiment is starting to improve, which is pushing risk currencies like the British Pound higher.
Drilling down to the H1 time frame, we can see that the picture actually looks a little more bearish than this, with the first higher low supported by the new horizontal resistance level at $1.3173. How this price level responds when next tested, and how the level a few pips below at $1.3164 reacts also, will likely determine what happens today.
Note that there is high-impact US data due today, mostly in the form of the Core PCE Price Index data which is closely watched by the Fed. A low surprise will send the price higher, a high surprise will send the price lower, with the most scope for a tailwind likely to be on the downside.
My Take on GBP/USD
I think day traders might look for short trade on bearish price action below $1.3164 targeting $1.310064. There is higher support at $1.3173 just a few pips above, so we can call this a pivotal zone for today. If this area does hold, we will probably see a move higher, which might gain momentum later in the day. However, once the New York session gets underway, if the Core PCE Price Index data carries any surprises, that will likely push the price higher or lower, so watch out for that.
Support & Resistance Levels
My previous GBP/USD signal on 23rd June showed I was correct to expect the price to fall after its break below key support and to then reach at least $1.3164.
Risk 0.75%.
Trades may only be entered prior to 5pm London time today.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.3164/73, $1.3100, or $1.3000.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to run.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.3207, #1.3231, or $1.3268.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning the British Pound. Regarding the US Dollar, there will be releases of Core PCE Price Index and Final GDP data at 1:30pm London time.
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