Talking Points:
- The bearish trend in the British Pound caught a bit of respite last week after a surprisingly-hawkish Bank of England rate decision, in which three members of the MPC voted for an immediate rate hike. This helped to firm odds for a rate move in August, and that in-turn helped to bring strength into the British Pound after what had become a very bearish prior couple of months.
- GBP/USD put in a recovery up to resistance at 1.3304, but has since been unable to break-higher. We have seen a bit of higher-low support on short-term charts, indicating that this bullish move may drive a bit deeper as a larger retracement in the bigger-picture down-trend in the pair. IG Client Sentiment remains stretched long, and this would keep the bearish side of the pair as attractive, particularly for longer-term stances.
- 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 Bounce After BoE
Last Monday we looked at a weak British Pound ahead of the June rate decision at the Bank of England. At the time, there was little to get excited about on the bullish side of the currency, as continued complications with Brexit negotiations were combined with what had become a dovish Bank of England to bring to question the potential for strength in GBP. The Bank of England was getting less enthusiastic about the prospect of rate hikes as British inflation continued to fall from the 3% prints of last year. We had looked at the prospect of bearish breakouts in GBP/USD, plotting a move towards Fibonacci support at around 1.3117. That move took place ahead of the BoE, at which point prices began to bounce as the bank took on a more-hawkish view than what many had expected.
GBP/USD Weekly Chart: Bounce From Fibonacci Support post-BoE
Chart prepared by James Stanley
The Bank of England rate decision saw three dissenting votes in favor of an immediate rate hike, and one of those dissents came from the Bank of England’s Chief Economist, Mr. Andy Haldane. This came as a bit of a surprise, and this quickly started to firm odds for a rate hike in August. In-turn, those expectations for higher rates have helped to bring into question that well-defined down-trend in the British Pound. GBP/USD rallied into Friday morning, eventually finding a bit of resistance at the first level of resistance that we had looked at last week around 1.3304.
GBP/USD Four-Hour Chart: Bounce to Resistance at Prior Support 1.3304
Chart prepared by James Stanley
At this stage, there are short-term setups on either side of the pair; but from a longer-term perspective, traders will likely want to wait for a re-test of the key zone of prior support that runs from 1.3447-1.3500 before plotting bigger-picture entries.
On the bearish side of the short-term setup in GBP/USD, we have a hold of that resistance around 1.3304. This can open the door for bearish strategies with stops above last week’s swing-high, targeting a return to 1.3200 for a better than one-to-one risk-reward ratio.
GBP/USD Four-Hour Chart: Bearish Continuation Potential
Chart prepared by James Stanley
On the bullish side of the short-term setup, traders can look to a recently established ‘higher-low’ that came-in around a point of prior swing-resistance. This can open the door for stops below the Friday swing-low of 1.3220 and initial targets cast up to 1.3350 to look for a better than one-to-one risk-reward.
GBP/USD Hourly Chart: Hold of Short-Term Higher-Low Support Opens Door for Deeper Bullish Move
Chart prepared by James Stanley
From a longer-term perspective, traders are likely going to want to wait for a bit of clarity. That prior zone of support that runs from 1.3447-1.3500 could be especially attractive for resistance should prices pose a re-test of this zone, and this could re-open the door for longer-term bearish stances in the pair.
GBP/USD Daily Chart: 1.3447-1.3500 Remains Key Decision Point for Longer-Term GBP/USD Charts
Chart prepared by James Stanley
IG Client Sentiment Remains Stretched
Further denoting bearish potential in GBP/USD is the fact that IG Client Sentiment remains stretched to the long side, similar to what we looked at last week. Retail traders are net long in the pair to a tune of +2.54-to-1; or, put otherwise, 71.8% of retail traders trading GBP/USD are currently holding a net long position. With retail sentiment being a contrarian indicator, this would continue to show potential on the bearish side of GBP/USD.
Please click here for a real-time reading of IG Client Sentiment on GBP/USD: GBP/USD Sentiment.
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
