GBP/USD Technical Analysis: Resisting at Financial Collapse Lows
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- GBP/USD Technical Strategy: Dramatic drop on heels of Brexit, but two-day recovery that’s seen ~375 pips come back.
- GBP/USD is likely going to remain volatile in the near-term. Continue to tread with caution.
- If you’re looking for trading ideas that aren’t GBP-related, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.
In our last article, we looked at the increasing volatility being seen in the British Pound ahead of the Brexit referendum. And the volatility around the vote was fairly extreme: British voters bucked market expectations by electing to leave the European Union, and this created considerable chaos across global financial markets. Stocks sold off, bonds rallied and Gold prices went ballistic; and as many would’ve expected, the British Pound put in a notable move lower by dropping as much as -12.7% from the pre-referendum highs. This was a peak-to-trough move of 1,900 pips after a low was set on Monday of this week at 1.3118.
Since that low was set, we’ve seen over 375 pips come back into the Cable, and while this might sound like an enticing event in a ‘normal market,’ we’re still fairly far from that type of environment in GBP; this 375-pip ramp hasn’t even hit the 23.6% retracement of the ‘Brexit move.’
Current price action is catching resistance at a familiar level, as the 1.3500 level was the low set in the Great Financial Collapse while also being a ‘major’ psychological level. This could be very attractive for short-side trend resumption plays, but traders should take caution that this retracement may have more room to run before down-side continuation becomes attractive. A bit deeper on the chart in the zone from 1.3834-1.3843 we have two interesting levels, as 1.3834 was the ‘pre-Brexit swing-low’ in the Cable, while 1.3843 is the 38.2% retracement of the Brexit move. This could be an attractive level to look for resistance in the effort of implementing continuation strategies.
Also of interest, retail positioning has been narrowing a net long position since Monday of this week. Decreasing long exposure, moving into or towards negative territory has a tendency to highlight bullish price movements. I’ve added five previous instances on the chart below with accompanying price action indicated in blue boxes. To learn more about SSI, please click on this link to access a free guide walking you through the indicator.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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