GBP/USD: Have Bulls Run Out of Momentum?
This currency was making a fairly strong, impulsive, and predictable rise, led higher by a symmetrical ascending price channel after gaining fuel from a failed bearish breakdown. The end of last week saw the price make a bullish breakout from the channel, but the price has struggled to move meaningfully higher.
It is important to note that this currency pair, again as is often typical in the Forex market, is being driven more by the US Dollar, which faces crucial data today, although the British Pound has been one of the stronger major currencies in recent days and weeks. What are the likely scenarios when the London and New York sessions bring more liquidity into this currency pair?
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As Volatility and Focus Resume, Opportunities Look Possible
After an entire year where the US Dollar, and by extension the Forex market, traded sideways with relatively low volatility, we have seen volatility increase and more direction also, making the Forex market more interesting. This is especially true in US Dollar pairs, as there was earlier more action in the Japanese Yen crosses for quite a long time.
The British Pound is in a position of trading as one of the strongest major currencies. It was strong last week and has opened quite well today. However, we see the US Dollar really starting to make some headway today after getting hit at the end of last week on weaker than expected US jobs data. Despite that data release, the market is still expecting a rate hike quite soon from the Fed, and this is keeping the greenback prone to a bid.
We are seeing this currency pair trade very near a cluster of key technical levels, so we could be primed for either a breakout or a major reversal today, which could set the tone for the entire week.
GBP/USD Technical & Fundamental Analysis
The British Pound has a relatively high interest rate, which is probably the main thing keeping it quite strong. The US Dollar does too, but the Federal Reserve also looks likely to hike its interest rate, and that is giving the US Dollar even more long-term strength.
The bullish breakout from the price channel reached an area of confluent resistance between $1.3375 to $1.3405 which includes two horizontal levels, two descending trend lines, and the round number at $.3400. This area looks like it has been and will continue to be strong resistance, and the price has already made a bearish double top chart pattern at its lower edge.
The price has quite a way to fall before it reaches any support, and the price action is certainly one of a slightly jittery but consistent selloff of the type where the buying just peters out. The price action suggests that the price is likely to reach the support level at $1.3297, which should be reinforced by its confluence with the round number at $1.3300.
My Take on GBP/USD
I think the resistant confluence overhead which starts at $1.3375 is strong and will hold today. It may not be touched again today, but if it is, and the price makes a strong bearish rejection of it, reward to risk permitting, a short targeting $1.3300 could be an excellent trade. This looks more likely to work out than anything else which might set up.
It could be the price just continues now to $1.3300 without touching $1.3375 first. The opportunity there might be a long scalp from a bounce at that support level, but this will almost certainly be a fast, short-term trade.
If the price gets established above $1.3405, that would be a bullish surprise and be a very bullish sign for this currency pair.
Support & Resistance Levels
My previous GBP/USD signal on 2nd July had me looking for a long trade above $1.3225, which was a good call that could have netted as much as about 50 to 60 pips.
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 $1.3297, $1.3264, or $1.3202.
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 $1.3375 / $1.3405, or $1.3489.
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 a release of ISM Services PMI data at 1:30pm London time
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