Talking Points:
- GBP/USD has pushed down to a fresh 2018 low this morning, and this comes after two weeks of grind largely held a key support zone around 1.3500. This bearish break took place after news that Scottish Prime Minister, Nicola Sturgeon, pledged to restart a drive for Scottish independence, adding yet another twist to the Brexit-saga.
- This week brings a plethora of GBP drivers to the table, with a smattering of BoE-speak intermixed among some really important data points. Key of which will be the Wednesday release of April inflation figures, followed by Friday morning’s Q1 GDP print.
- Quarterly Forecasts have just been updated, and the Q2 forecast for GBP/USD is available from the DailyFX Trading Guides Page. If you’re 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.
Want to see how retail traders are currently trading GBP/USD? Click here for GBP/USD Sentiment.
British Pound Bears Drive to Fresh 2018 Lows
The bearish backdrop in the British Pound has continued into another week, with the pair having given up almost 1,000 pips over what’s become a brutal past month of price action. After coming into the month of April riding the wave of strength that had driven the pair-higher throughout March, GBP/USD found resistance at a key area on the chart just ahead release of the release of March inflation numbers out of the UK. Inflation has become a pivotal driver in the UK economy given the fact that rising forces of inflation were starting to force the Bank of England into a more-hawkish position. With inflation rates running at or above 3% for the final few months of last year, there appeared to be few options for the bank: Either hike rates or wait for inflation to tilt the British economy into recession.
But March inflation numbers printed below expectations, giving rise to the idea that the Bank of England may have gained-back some flexibility with monetary policy; and sure enough, after that disappointing release of inflation data in mid-April, the Bank of England held rates at their ‘Super Thursday’ rate decision in May. This only added more fuel to the fire of GBP-selling, and after spending the better part of two weeks grinding at a key support level on the chart, prices posed a drop after this week’s open to help create a fresh 2018 low in GBP/USD.
GBP/USD Daily Chart: Sharp Reversal Turns Strong Bullish Trend into Aggressive Bearish Move
Chart prepared by James Stanley
Two weeks ago, we looked at the pair riding a key support level around 1.3500. This is a level with a bit of historical importance, as this had functioned as the ‘swing low’ from the Financial Collapse for more than eight years; until Brexit came into the equation, that is. Just below that price, we have a key retracement level, as 1.3478 is the 50% marker of the ‘Brexit move’ in the pair. This zone of support helped to hold the lows in the pair, even through the Bank of England’s dovish rate decision and into this week’s open. But as trading opened for this week, another bearish theme showed around the pair when Scottish PM Nicola Sturgeon mentioned the possibility of Scottish independence. This helped to bring another wave of selling into GBP/USD, bringing on a print of a fresh 2018 low in the process.
GBP/USD Two-Hour Chart: The Slow Yet Steady Grind of a Long-Term Support Breach
Chart prepared by James Stanley
This Week’s GBP Data – UK Inflation, GDP and BoE-Speak
This is a fairly full week of GBP drivers, with items of interest on the calendar for every day for the rest of this week. We have a smattering of BoE-speak on the schedule for Tuesday and Thursday; and the ‘big’ items of interest will likely revolve around the Wednesday release of April inflation numbers. Also of interest is the GDP release on Friday morning; collectively producing a full slate of high-impact drivers.
DailyFX Economic Calendar: A Busy Week for the British Pound
Chart prepared by James Stanley
Moving Forward
At this point, it can be difficult to muster a bullish vantage point on the British Pound. Given the heavy slate of drivers on the horizon, that potential could present itself but, from where we’re at now, that would be a bit of a stretch.
On a short-term basis, traders can look for resistance at that prior area or zone of support for bearish continuation. This would allow for stops above the swing high around 1.3570, with targets directed towards supports at 1.3400, followed by 1.3325 and then 1.3250.
For those that want to address the short-side of the move a bit more aggressively, lower-high resistance could be sought out as deep as 1.3450 on the charts, as a prior swing-low here can widen that zone of potential resistance.
GBP/USD Hourly Chart: Lower-High Resistance Potential at Prior Area of Key Support
Chart prepared by James Stanley
For Bullish Strategies
Given the slate of data on the horizon, traders would need to acknowledge the possibility of reversal. GBP/USD has been hammered over the past month, and a part of this has been a really strong US Dollar. This could produce a backdrop where a simple bullish driver, such as stronger-than-expected inflation print can produce a reversal. For that approach, traders are likely going to want to see bulls re-claim that 1.3500 area as support before looking for topside continuation.
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
Forex Trading Resources
DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.
If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.
--- Written by James Stanley, Strategist for DailyFX.com
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