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GBP/USD: Cable Continues to Cross 1.4000 Ahead of UK GDP

GBP/USD: Cable Continues to Cross 1.4000 Ahead of UK GDP

2018-02-21 16:32:00
James Stanley, Strategist
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Talking Points:

- GBP/USD seemingly shrugged off last week’s bullish drivers out of the UK, but the pair really perked up as USD-weakness extended last Wednesday following the release of US inflation numbers.

- That strength has been unable to hold in the pair, however, and prices are now pulling back and re-approaching a key area of prior support. Tomorrow brings UK inflation numbers, and this will likely keep Sterling prices on the move.

- Are you looking to improve your trading approach? Check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

If you’re looking for longer-term analysis on GBP or USD, click here for our Trading Forecasts.

GBP/USD Back-and-Forth

GBP/USD has been on a rollercoaster over the past month, with much of the ride being driven by volatility in the US Dollar. The strength in the first half of the month was largely wiped away in a few trading days last week as the Greenback sunk down to fresh three-year lows. But, after those lows have come into place, more strength has showed up, leading to a zig-zag type of performance for USD thus far in February.

GBP/USD has largely been along for the ride. The pair seemingly shrugged off the hawkish shift from the BoE earlier in the month at the bank’s Super Thursday. And then last week’s inflation print appeared to do little to the bullish side of the pair, with a delayed reaction showing a day later (around the release of US inflation numbers). That bullish shift allowed for a 300-plus pip jump, but since then prices have been retracing-lower. The net of all of the above is a rather messy near-term scenario in GBP/USD. A bearish channel has started to show as prices have continued to retrace last week’s gains.

GBPUSD Hourly Chart: Bearish Channel as GBP/USD Moves Back-Below 1.4000

gbpusd hourly chart

Chart prepared by James Stanley

From the four-hour chart below, we can add a bit of context to this channel, highlighting how the variated nature of price action earlier in the month makes levels in this vicinity a bit less reliable. But – on the other side of price action, we have a series of higher-lows that have been building on subsequent support tests, first with 1.3765, then at 1.3793 and then 1.3799. This is showing how buyers have been treating deeper support tests on the pair.

GBP/USD Four-Hour Chart: Support Building Around the 1.3800-Handle

gbpusd four hour chart

Chart prepared by James Stanley

Moving Forward

Tomorrow brings GDP numbers out of the UK, and this will likely push prices in the pair, at least to some degree. The bigger question is whether buyers show-up to offer another element of higher-low support, which could keep the door open to longer-term bullish strategies. The area of support we’d be watching was the same that we looked at last week, around the 1.3837 level, which is the 61.8% retracement of the ‘Brexit move’ in the pair.

Until then – the door is open for bearish strategies as prices remain below the 1.4000 level. This would be shorter-term, and would likely be looking for a top-side break in DXY above the 90.00 level.

To read more:

Are you looking for longer-term analysis on GBP/USD? Our DailyFX Forecasts for Q1 have a section specifically for GBP/USD. We also offer a plethora of resources on our GBP/USD page, and traders can stay up with near-term positioning via our IG Client Sentiment Indicator.

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

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