Since my first update (below) on May 1, GBPUSD has continued to slide lower and is currently at 1.3454 - just under the target mentioned. Now would therefore be a good time to close the short position and take the very substantial profit made.
To recap, GBPUSD was at 1.3936 when the sell recommendation was published originally and at 1.3629 when I suggested taking some profits. Now it is at 1.3454 and, while it could well fall further, the risk is growing of a rally. Best not to be too greedy!
Back on April 26, I wrote this Analyst's Pick suggesting selling GBPUSD, which was trading then at 1.3936. Since then, the pair has hit all my targets: 1.3764, 1.3717/12 and 1.3659. Currently it is trading at 1.3629 so I suggest taking at least half the substantial profits made.
GBPUSD remains in a downtrend and the next downside target is the January 11 low at 1.3458. However, there is bound to be a retracement at some stage so locking in a profit at these levels would be wise.
GBPUSD talking points:
- After touching a 2018 high of 1.4377 on April 17, GBPUSD has dropped back below the psychologically significant 1.40 level.
- Now those losses look set to be extended, with the February and March lows the initial targets.
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GBPUSD losses to persist
The outlook for GBPUSD is looking increasingly bleak after a drop from April 17’s 2018 high of 1.4377 to the current levels just below the 1.40 mark. Already under both the 20-day and 50-day moving averages, the pair has now fallen beneath the 100-day moving average too – confirming that the trend is now downwards.
The rot really began when the trendline that had supported GBPUSD for most of last month was broken on March 29. It then acted as resistance and after several attempts at an upside break the price fell sharply on April 18 and has continued to drop since.
GBPUSD Price Chart, Daily Timeframe (Year to Date)
Now the focus is on several important support levels, which are essentially the next medium-term targets. First up is the February 9 low at 1.3764, followed by the March 1 low at 1.3712. The long-term rising trendline that has supported the pair since March 14 last year is currently around the same level, at 1.3717, and below that lies the high from September 20 last year, at 1.3659.
Note too that while the 14-day relative strength index is approaching the 30 mark, that would indicate the market is oversold, it is not there yet.
Turning to the weekly chart below, note that last week was a key reversal week. GBPUSD hit a new high for the uptrend but closed under the previous week’s low – another bearish signal.
GBPUSD Price Chart, Weekly Timeframe (May 2016 to Date)
To the upside, the key risk to this scenario would be a rally back to the April 17 high at 1.4377, signaling a resumption of the uptrend.
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--- Written by Martin Essex, Analyst and Editor