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GBP/USD Technical Analysis: Cable is Testing Support

GBP/USD Technical Analysis: Cable is Testing Support

2016-12-21 15:55:00
James Stanley, Strategist
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Talking Points:

  • GBP/USD Technical Strategy: Prior bullish-move in question, price action currently testing support.
  • While GBP seemed rather resistant to USD-strength in the month of November, the past two weeks (ECB, then Fed) have seen USD-strength show more prominently against the British Pound.
  • If you’re looking for trading ideas, check out our Trading Guides.

In our last article, we looked at how the British Pound, surprisingly, was one of the few currencies in the month of November that actually kept-up with the U.S. Dollar’s blistering up-trend. And there were numerous reasons for it: We outlined many of these in the article entitled, Why Did the British Pound Stop Going Down.

But as fortuitous timing would have it, shortly after that article was published the Federal Reserve got more hawkish with interest rate expectations for 2017, 2018 and 2019. As this was happening, USD-strength began to show even more prominently, and Cable broke below an aggressively up-ward sloping trend-line. Breaking below this bullish trend-line raises questions around bullish momentum in the pair; but current price action is still supported at the 1.2300-figure that has proven to be rather relevant to GBP price action over the past three months.

So, while the bullish up-trend in GBP/USD is in question after this trend-line break, traders would likely want to avoid calling this a ‘bearish’ setup until we get a sustained-break of support in the vicinity of 1.2300. Perhaps more to the point, with USD-stretched against many markets, showing as highs or lows in pairs like USD/JPY or EUR/USD; the deductive fact that we’re not at lows could make this appealing for USD-reversal scenarios.

GBP/USD Technical Analysis: Cable is Testing Support

Chart prepared by James Stanley

At issue for the bearish side of Cable is the fact that the U.S. Dollar continues to trade near 14-year highs. As we move towards year-end with a dearth of data or drivers, there may not be compelling-enough evidence to drive even deeper gains as we move into year-end. Those looking to accumulate long-USD exposure would likely want to look at a pair that’s been a bit more amenable for such a theme, like USD/JPY.

But for those that are looking to take on short-USD exposure, or for those looking to play the long-side of the Cable, GBP/USD could remain an attractive option until support at 1.2300 is taken-out by a sustained break.

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

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