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GBP/USD Drops Through 1.3000 to Find Support at 88.6% October Fib

GBP/USD Drops Through 1.3000 to Find Support at 88.6% October Fib

2018-10-22 18:20:00
James Stanley, Currency Strategist
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GBP/USD Talking Points:

- It’s shaping up to be a big week for PM Theresa May, and we may be nearing a no-confidence vote at some point this week. This fear has helped to push the British Pound back-below the vaulted 1.3000 level, as discussed by my colleague Mr. Justin McQueen earlier today.

- GBP/USD fundamentals were discussed earlier today in Mr. David Song’s article entitled, GBP/USD Forecast: Post-EU Summit Weakness to Persist as Bull Trend Snaps. In this article, the technical backdrop will be the primary focus; but if looking for more information behind the fundamentals around the British Pound, including focus on the upcoming ‘Super Thursday’ rate decision at the Bank of England, check out David’s earlier-published piece.

- Quarterly Forecasts have just been updated, and the Q4 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 Back-Below 1.3000 as Bull Trend Puts in 88.6% Retracement

The past two months have been surprisingly strong for the British Pound, particularly when considering the headlines that have continued to print across British media. Brexit continues to bring more questions than answers and, to date, still nobody really knows how the divorce from the EU is going to shape up. This has led to intra-party political strife amongst the Tories, and the rumor for this week is that PM Theresa May could possibly be headed towards a no-confidence vote as her Chequers plan has fallen-flat. This, of course, introduces more risk into the equation, similar to what was seen in July when Ms. May saw a series of high-profile resignations from her cabinet.

This recent run of risk aversion has already pushed GBP/USD back-below the vaulted 1.3000 psychological level, and along with it came a break-below the bullish trend-line that connects the August and October lows in the pair.

GBP/USD Four-Hour Price Chart

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

At this stage, prices are finding a bit of support on the 88.6% Fibonacci retracement of the prior October major move. This type of retracement will often be looked at for deep reversal setups; and so far on the morning, this has held up this decline after four consecutive hourly bars found some element of support here.

GBP/USD Hourly Price Chart: Support at 88.6% of October Major Move

gbpusd gbp/usd hourly price chart

Chart prepared by James Stanley

This support may not be enough to eradicate the bearish momentum that pushed prices below 1.3000 to start this week. But – it may allow for prices to retrace enough to open the door for lower-high resistance at a key area on the chart. The price of 1.3030 was previously in-focus as buyers had offered multiple iterations of support at the level earlier in October. When prices were plummeting lower this morning, a temporary slowing of the selling developed, but even that couldn’t hold back the floodgates as bears continued to push through 1.3000.

The area from 1.3000-1.3030 can be utilized as a potential zone of lower-high resistance. Sellers showing in this area, as indicated by top-side wicks in the zone, opens the door for short-side strategies with stops above the Friday high of 1.3104.

GBP/USD Hourly Price Chart: Lower-High Resistance Potential at Prior Support Zone

gbpusd gbp/usd hourly price chart

Chart prepared by James Stanley

Alternative Rout for Bearish Strategies: Breakouts

Given the consistency with which bears came-in around this week’s open, there’s an alternative scenario that can be used by GBP/USD bears, and that would involve sellers continuing to push without letting prices firm up to the 1.3000 area. This can open the door for short-side breakout logic, where a bearish test below the 88.6% retracement above opens the door for a re-test of the October low at 1.2921. This would be an approximate 30 pip breakout, at which point stops can be adjusted to break-even, with the remainder of the position being left open to look for a bigger-picture bearish breakout; partly fueled by the breach of symmetrical wedge support looked at in the first chart in this article.

GBP/USD Four-Hour Price Chart

gbpusd gbp/usd four hour price chart

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

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

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