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GBP/USD Technical Analysis: Morning Star Sets Support

GBP/USD Technical Analysis: Morning Star Sets Support

2015-10-05 19:32:00
James Stanley, Strategist
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Talking Points:

  • GBP/USD Technical Strategy: Flat
  • Setups exist on both sides of Cable after the morning-star printed on Thursday and Friday of last week.
  • Short-term support just north of 1.5100 could prove attractive for long plays, while resistance at 1.5250 could be used for stop placement of short-positions.

The British Pound continues to seek out a bottom against the US Dollar after putting in a bullish morning-star formation on Thursday and Friday of last week. This morning-star formation comes on the heels of a 500+ pip drop after the Federal Reserve elected not to hike rates at their September meeting. The ‘hawkish hold’ from the Fed did little to ease investors’ tensions around the global economy and the numerous factors that have been continually cropping up; namely an Asian slowdown combined with a tumultuous run in commodity prices that make the prospect of tighter monetary policy extremely daunting. But this hasn’t just impacted the US, as British rate expectations have also been priced-out as many believe that the Bank of England will not hike rates until after the FOMC.

This created a vacuum in the Cable that saw prices drop through numerous support levels as traders priced out higher rates for a UK economy that, like the US, is just starting to see the initial signs of ‘recovery’ take place within their economies. We hear from the Bank of England on Thursday, and this could provide the fuel for new trends should the bank make a concerted stance towards either rate hikes, or ‘accommodation’ due to the flurry of economic factors swirling the globe right now.

For now, the long side of GBP/USD could prove more attractive as the recently-established support just above the 1.5100 handle could provide a relatively tight stop and traders could look to lodge that stop below 1.5089, which was has been the five-month-low in the pair. This could open the door for targets at 1.5200 (previous price action resistance), 1.5250 (major psychological level), 1.5287 (76.4% Fib retracement of the most recent major move – taking the May low to the June high), 1.5308 (23.6% of the ‘big picture move,’ taking the 2007 high to the 2009 Financial Collapse low), and then 1.5345 (50% Fib retracement of the secondary move – taking the 2009 low to the 2014 high).

The short-side of the Cable could also offer opportunity: Traders could look to set stops just above the 1.5250 level, which has capped the highs from Friday and Monday; with targets set to the 1.5089 level and then 1.5000 flat, which is a major psychological level in the pair. Just below 1.5000 is the 61.8% retracement of the secondary move at 1.4909 and this could provide a third profit target for short-side plays in GBP/USD.

GBP/USD Technical Analysis: Morning Star Sets Support

--- Written by James Stanley, Analyst for DailyFX.com

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