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GBP/USD Price Plummets into Critical Support Zone

GBP/USD Price Plummets into Critical Support Zone

Michael Boutros, Strategist

The British Pound is down nearly 4% off the January high with the price now approaching key near-term confluence support. The focus is on a reaction here with a break lower risking substantial losses for Cable.

GBP/USD Daily Price Chart

GBP/USD Price Chart - Daily Timeframe

Technical Outlook: Sterling broke below the weekly opening-range yesterday with the decline now approaching key confluence support at 1.3765/89- a region defined by the 23.6% retracement of the 2017 advance and the February opening-range low. Note that basic trendline support extending off the November swing lows also converges on this threshold over the next few days and could limit the downside near-term.

A break / close below this threshold would risk substantial losses for the pound with such a scenario targeting subsequent daily support objectives at the Brexit gap at 1.3675, the 2017 high-close at 1.3589 and critical support at 1.3500/40 (broader bullish invalidation for the primary uptrend & an area of interest for long-entries IF reached)

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GBP/USD 240min Price Chart

GBP/USD Price Chart - 240min Timeframe

Notes: A closer look at Sterling price action highlights a near-term descending pitchfork formation extending off the yearly highs. Interim resistance now stands at the highlighted slope confluence around ~1.39 with bearish invalidation now lowered to the 1.40-handle. A break here at the 1.3765/85 support zone eyes subsequent targets at 1.3675/85 backed closely by the 2017 high at 1.3658 and the 100% extension at 1.3562.

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Bottom line: This is a significant pivot and we’re looking for a reaction here with the immediate downside bias at risk while above this support zone. A daily close below this level would be needed to keep the focus lower - ultimately, a larger set-back would offer more favorable long-entries with a breach above 1.40 needed to mark resumption of the broader up-trend. From a trading standpoint, I’ll be looking for a possible near-term exhaustion trade while above this threshold before breaking lower.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy.

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- Written by Michael Boutros, Currency Strategist with DailyFX

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Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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