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GBP/USD: Cable Challenges 1.3000 as Fibonacci Support Bounce Extends

GBP/USD: Cable Challenges 1.3000 as Fibonacci Support Bounce Extends

2018-08-29 18:00:00
James Stanley, Currency Strategist
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GBP/USD Talking Points:

- The British Pound is breaking out after supportive comments from EU Chief Negotiator, Michael Barnier, indicated that the EU was prepared to offer a post-Brexit partnership to the UK. While the threat of a Hard-Brexit scenario had been a bearish push point for the British Pound over the past few months, that pressure was quickly released and GBP/USD shot-higher to test above the key psychological level of 1.3000.

- When the backdrop shifts, so should the trader, and with this bullish move today taking out numerous points of resistance, the door has to be re-opened for topside potential. Below, we look at two possible ways of moving forward based on how aggressively a trader wants to treat the move.

- Quarterly Forecasts have just been updated, and the Q3 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 Spikes on Barnier Comments

It’s been a big day for the British Pound so far as an announcement on the Brexit-front has created a sharp move in the currency. After the open of this morning’s US session, EU Chief negotiator Michael Barnier announced that the EU would be prepared to offer a post-Brexit partnership to the UK. This comes at odds with previous indications towards a hardened stance from the EU, and this had created fears of a ‘Hard Brexit’ or a ‘No Deal Brexit’ scenario, which had continued to provide downward pressure onto the British Pound over the past two months.

On the heels of the announcement, Sterling quickly rallied against pretty much every currency, and in GBP/USD, prices jumped-up to the 1.3000 psychological level.

GBP/USD Two-Hour Price Chart: British Pound Jumps Above Resistance, Begins 1.3000 Test After Barnier Comments

gbpusd gbp/usd two hour price chart

Chart prepared by James Stanley

The month of August has been very interesting for the British currency. We came into the month fully expecting a rate hike out of the Bank of England for only the second time in a decade; but even that could not arrest the declines that had become commonplace for the Pound. As a matter of fact, the BoE was so incredibly dovish during that rate announcement, largely on the opaque nature of Brexit proceedings, that the currency sold off for the next two weeks after the 25 basis point hike, finally hitting a fresh yearly low around the 1.2671 Fibonacci level.

GBP/USD Weekly Price Chart: 78.6% Resistance in April, 23.6% Support in August

gbpusd gbp/usd weekly price chart

Chart prepared by James Stanley

That support came into play on August 15th, and after an initial build of support, we looked at taking the pair higher with a target in the resistance zone that runs from 1.2918-1.2956. As we looked at in yesterday’s webinar and again in this morning’s article, a second visit to that resistance was met by sellers pushing down to near-term lows, opening the door for a return of bearish strategies.

But this morning’s announcement brought upon a sharp topside move that brings bearish strategies into question as we now have a key factor in the backdrop of GBP/USD shifting. As we wrote in our technical article earlier in the week, breaks above resistance could soon bring on the potential for bullish continuation strategies, and this is now a viable prospect given the resistance test at 1.3000 this morning.

GBP/USD Technical Strategy

We’re fast approaching the end of the summer and with that usually comes a return of liquidity. But this has been a very active summer for FX and, more specifically, the British Pound as a series of themes have remained in the headlines over the past few months.

But with one of the primary bearish drivers now seemingly coming into question, the potential for further topside can remain. Traders looking to implement bullish strategies can look to do so in one of two ways, the first of which would be a fairly standard method of trend continuation by looking for prices to pullback to support at prior resistance before staging another challenge at 1.3000. The resistance zone that we were previously following in the pair runs from 1.2918 up to 1.2956, and this now becomes potential higher-low support.

GBP/USD Two-Hour Price Chart

gbpusd gbp/usd two hour price chart

Chart prepared by James Stanley

The second method of bullish continuation can be utilized by those that remain skeptical of the fresh move, instead waiting for further topside confirmation before looking to buy at higher-low support. The last swing-high before the bearish breakout earlier in August took place at 1.3043, and a test above this level could be seen as a very bullish sign as buyers would need to retain control to make this happen. After that, higher-low support could be sought-out with a bit more confidence that bulls may be able to continue to push.

Deeper resistance can be sought at a prior support swing around 1.3081, followed by a return to the 38.2% Fibonacci retracement of the Brexit move. This is the same study that caught the April top and the August low; so if this theme continues, that level becomes a very attractive destination for near-term price action in GBP/USD.

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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