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GBP/USD Technical Analysis: Dramatic Drop with Risk Aversion

GBP/USD Technical Analysis: Dramatic Drop with Risk Aversion

James Stanley,

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Talking Points:

  • GBP/USD Technical Strategy: Flat, long position stopped out.
  • GBP/USD working on aggressive price action lower that’s seen two Fibonacci levels give way to falling prices.
  • Short-term momentum is bearish, while intermediate and longer-term setups remain unclear.

In our last piece, we took a long GBP/USD position after near-term support had shown at the ‘big figure’ of 1.5500 and a stop at 1.5407. Since then, prices have moved dramatically lower, triggering the stop and closing the position. The budding up-trend that appeared to be building in the Sterling has given way to a congested setup with no clear intermediate or longer-term direction. But with numerous support and resistance levels in the current vicinity of price, setups exist on both sides of the market.

On the bullish side for those looking at reversal plays, support at 1.5200, 1.5184 and 1.5089 could provide a bottom with which to anchor stops should price action show intra-day support. In this scenario, targets at 1.5287 (76.4% Fibonacci retracement of the most recent major move (taking the May low to the June high)), 1.5308 (23.6% retracement of the ‘big picture move’ taking the 2007 high to the 2008 low), and then 1.5410 (61.8% of the most recent major move) become attractive.

On the short side, risk management will likely be more difficult as the outsized moves of the past four trading days have left little resistance for stop placement. Traders can treat this situation with one of two options: A) Trade the break of support levels or B) wait for price to wiggle up to resistance before triggering short so that stops can be placed above those near-term highs.

For those looking to trade the short-side breakout, 1.5200 and 1.5184 could provide relevant levels for entry with targets cast towards 1.5100 (psychological level) or 1.5089 (the May 2015 low). For those looking to ‘sell high,’ resistance could be sought at previous levels at 1.5287, 1.5308 or 1.5345 before triggering short with targets set to those same support levels mentioned earlier (1.5200, 1.5184, 1.5089).

Written by James Stanley of DailyFX; you can join his distribution list with this link, and you can converse with him over Twitter @JStanleyFX.

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