Talking Points:
- It’s a busy week for the British Pound, as a slew of BoE speakers are on the docket for this week. The big question is just how hawkish the various members of the Monetary Policy Committee might be after the dovish move at the May ‘Super Thursday’ rate decision at the Bank of England. Might an August rate hike be in the cards? Inflation continues to fall in the UK, and this remains in the crosshairs of global markets.
- GBP/USD put in a bounce off of fresh 2018 lows in the latter-portion of last week; but that move appears to be corrective in nature, and we published a short-side GBP/USD setup in our FX Setups for the Week of June 4, 2018. At this point, GBP/USD appears to be one of the more attractive venues to work with a continuation of US Dollar strength after the Greenback pulled-back to support.
- 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.
GBP/USD Bounce From Lows Builds into Bullish Channel
The British Pound has had a rough past six weeks. As we came into April, hopes were high for a rate hike at the Bank of England’s Super Thursday rate decision just a month away. But, in mid-April we got a disappointing inflation report; and that was followed by a disappointing GDP report. Collectively, the drawdowns in those data points made a case for the BoE backing away from rate hikes, and that’s precisely what happened as we came into the month of May. The BoE went dovish, and GBP/USD continued to grind at the 1.3500 support level, eventually falling through a couple of weeks later after Scottish Prime Minister Nicola Sturgeon mentioned the possibility of another drive for Scottish independence. Cable continued to sell-off on the heels of that announcement, and just last week set a fresh 2018 low at 1.3205.
Since then, prices have rallied in a rather consistent fashion, building into a bullish channel along the way.
GBP/USD Hourly Chart: Bullish Channel Builds Off of the Lows
Chart prepared by James Stanley
When we looked at the pair last week, we advised against chasing-lower as the pair remained oversold from a number of vantage points; instead looking for lower-high resistance around the 1.3400-handle. That showed up this morning after which prices began to break-lower. We published an analyst pick shortly after, looking at the short-side of GBP/USD as one of the more attractive venues to play a continuation of USD-strength after the US Dollar posed a support check earlier this morning.
GBP/USD Two-Hour Chart: Bullish Channel as Potential Bear Flag, Corrective in Nature
Chart prepared by James Stanley
Since that Analyst Pick was published no more than a few hours ago, prices have already broken-lower, making that prior setup a bit more difficult to work with given the greater distance away from the stop above 1.3450. So, for traders that do want to look for continuation, the possibility of short-term lower-high resistance around 1.3350 keeps the door open for bearish continuation.
GBP/USD 30-Minute Chart: Shorter-Term Lower-High Resistance Potential
Chart prepared by James Stanley
The Other Side of GBP/USD
On the long side, traders will likely want to wait for price action to re-engage above the 1.3500 level before forecasting longer-term bullish scenarios around the pair. The fact of the matter is that this bearish move in GBP/USD has went hand-in-hand with the bullish move in the US Dollar, and if traders are, in-fact, going to look for a reversal here, they’re in essence trading reversals of two major themes at the same time: Playing reversals of both Sterling-weakness and USD-strength. If the pair is able to mount above the 1.3500 area that had previously worked as some very strong support, that door could re-open. Until then, traders should be cautious around the long side of Cable, or any GBP-pairs for that matter, as last week’s flares of strength appear corrective at this point.
GBP/USD Four-Hour Chart: Re-Take of 1.3500 Key for Longer-Term Bullish Approaches
Chart prepared by James Stanley
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
Contact and follow James on Twitter: @JStanleyFX
