Sterling Technical Forecast: British Pound Breaks Down Ahead of Q4
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GBP Talking Points:
- Sterling traded lower this week across-the-board after a surprisingly strong outing in early-September.
- GBP/USD shows setup potential on both sides, but GBP/JPY may be of interest for Sterling bears while GBP/AUD retains some value for British Pound bulls.
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British Pound Breakdown Comes Back into Play
As the Q3 close nears it’s been a riveting past three months in the British Pound. Sterling came into Q3 clinging to the downtrend that had become commonplace in the British currency. And with the persistently negative headlines around the ongoing Brexit saga, the fundamental backdrop meshed with that thesis. But, in early-August, a long-term trendline came into play that helped to hold the lows in GBP/USD and, for the rest of the month, the pair exhibited back-and-forth tendencies as support began to set, and the net of last month’s price action was a doji coming in around that trendline projection.
GBP/USD Monthly Price Chart
Early-September is when matters around GBP/USD became more interesting. Price action started the month with a quick dip below the 1.2000-handle after which buyers showed-up with a vengeance, evoking a topside move that could be best described as a short-squeeze after a painful five-month downtrend finally ran into support in August. Prices in GBP/USD surged by more than 500 pips as the trend-flipped and another area of resistance came into the equation. That confluent resistance around the 1.2500-handle runs very near the 1.2493 level, which is the 14.4% retracement of the September rally.
That resistance held helped to cauterize the highs and, after two weeks of failed tests, sellers were able to re-grab control going into the Q3 close, pushing prices down to the 50% marker of that same major move.
GBP/USD Four-Hour Price Chart
GBP/USD: Conflicting Signals, Neutral Bias
That recent hold of key support, combined with a general proclivitiy for selling to dry up below the psychological 1.2000 handle keeps open the possibility of bullish biases in the pair for Q4. But, on the diametrically opposite side of the matter the weekly chart of GBP/USD is showing an evening star formation, which will often be looked to for a continuation of a bearish reversal. But, given the fact that this bearish reversal has, so far, run into a key area of support, the matter is a bit cloudy as there’s a case to be made on either side and the driver of this will likely at least receive some bearish from USD-flows.
The technical forecast for next week will be set to neutral for GBP/USD.
For traders that do want to focus on short-side GBP strategies, GBP/JPY may be of interest. Bullish strategies, on the other hand, may be more efficiently directed towards GBP/AUD. Charts for each are shared below.
GBP/JPY Weekly Price Chart
GBP/AUD Daily Price Chart
To read more:
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.