GBP/USD Technical Analysis: Trend in Question Ahead of Super Thursday

2016-05-09 16:55:00

To receive James Stanley’s Analysis directly via email, please sign up here.

Talking Points:

GBP/USD Technical Strategy: Flat.
A brisk turn-around in the US Dollar has brought five consecutive days of softer prices in the Cable. Is this a lasting move?
If you’re looking for more trade ideas, check out our Trading Guides; they’re free.

In our last article, we looked at the prospect of a reversal in GBP/USD as RSI divergence had begun to show on the 4-hour chart while the Cable continued to trade near short-term resistance. Shortly after publishing that article, an even higher-high was printed in GBP/USD; at which point US Dollar strength began to take over. For the last four trading days of the past week, the US Dollar moved higher and this theme has continued so far to kick off the new week as the US Dollar has strengthened even further.

The big question here is one of sustainability. Until five trading days ago, the US Dollar was on a profound move of weakness as US rate hike expectations were dwindling lower and lower as rate hikes were being priced even further and further out into the future. But over the last week we’ve seen those rate expectations move even lower while the US Dollar has turned around and began to strengthen.

As we had written in our last article, this could lead to trend resumption setups for Sterling bulls; but with Super Thursday on the docket for later in the week, traders may be well-served by waiting for a more confirmed setup given the rampant volatility that’s been showing in USD of late.

The near-term structure in GBP/USD remains bullish, and we’ve just moved down to the 38.2% retracement of the most recent major move in the ~1.4311 region. This area of near-term support is also showing around a prior swing high, which could open the door for long positions should support hold in this area for those looking to get short USD. A bit lower at 1.4302 we have the 50% retracement of the same Fibonacci setup, and should this become violated, a case can be made for a return of the bearish trend as we’d then have a ‘lower-low’ to work with.