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GBP/USD: Cable Hangs at September Support; Can it Hold the Lows?

GBP/USD: Cable Hangs at September Support; Can it Hold the Lows?

2018-10-29 18:34:00
James Stanley, Currency Strategist
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GBP/USD Talking Points:

- This week brings a ‘Super Thursday’ rate decision out of the Bank of England, but given the ongoing saga with Brexit and the brutal lack of clarity around the upcoming split from the UK, we’re unlikely to see much change to the bank’s policy outlay. Updated forecasts and projections could provide ample motive for near-term price action, and this will likely be the focus around the Thursday rate decision.

- GBP/USD has been mired in a consistent sell-off for the past two week’s that’s seen very little pullback or slowdown. Support is hanging by a thread around the September swing-low, just under the 1.2800-handle. Can Cable bulls wait out the flurry of negative headlines until some type of positive driver might compel a pushfrom support? Breakaway US Dollar strength is now another item of contention for GBP/USD bulls as the US currency continues to trade around two-month highs.

- 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: From Confluent Support Break to Bearish Trend

It’s been a brutal past week for the British Pound as the currency has spent much of the time in some form of sell-off. Last week, I had looked at the bearish breakout in GBP/USD after prices tested below a bullish trend-line that made up a symmetrical wedge pattern. That support was confluent with the 1.3000 big figure, and last week’s technical piece on GBP/USD looked for resistance at prior support ahead of a deeper bearish move.

That resistance showed-up on Tuesday; and Wednesday and Thursday led to a decisive move lower as the pair sold-off down to the September swing low around the 1.2800 handle. This support held the lows on Friday and into the weekend, and bears look poised for a re-test already in the early portion of this week.

GBP/USD Four-Hour Price Chart: Wedge Break, Resistance at Prior Support, then Go

GBPUSD gbp/usd four hour price chart

Chart prepared by James Stanley

This week’s economic calendar brings a key rate decision out of the Bank of England. This is a ‘Super Thursday’ event, meaning that the rate decision will be coupled with an updated set of forecasts and projections, released along with the accompanying press conference that will see BoE Governor, Mark Carney, take questions from the press.

DailyFX Economic Calendar: Super Thursday On Deck Out of the UK

DailyFX Economic Calendar High-Impact UK Events for Week of October 29, 2018

Chart prepared by James Stanley

Given the ongoing saga around Brexit discussions, it’s unlikely that the bank does anything of note to monetary policy at this week’s meeting. If we didn’t have the overhang of Brexit risk, we may start to see the BoE lay the groundwork for another hike in February, or perhaps next May at another Super Thursday event. But, that’s a very big ‘if’ at the moment, and Brexit risk does remain in the headlines.

It’s that Brexit risk that remains a key deterrent to strategies around the British Pound at the moment, and this has been the case for almost two months now. In late-September, GBP-weakness came back into the equation as a seven-week up-trend was stopped dead in its tracks. A quick flicker of strength shortly after the Q4 open couldn’t overcome the bearish price action that had started to take control of GBP/USD, and over the past two weeks sellers have very much remain in-control.

GBP/USD Four-Hour Price Chart: Sellers Take Control Down to the September Low

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

Bearish Continuation Potential

Coming into this week, GBP/USD was listed as one of the FX Setups for the Week of October 29th. This is especially attractive in a backdrop with continued US Dollar strength, following what was a really big week for the US Dollar breakout as the currency pushed up to fresh two-month-highs.

Given the pace of last week’s trends, combined with the continued lack of clarity on the Brexit-front, and that bearish potential for GBP/USD remains. Prices have been mired in a consistent sell-off for the past two weeks that’s adhered to an aggressively-sloped trend-line. This has led RSI on the Four-Hour chart back into oversold territory, indicating that the current move may be a bit stretched after last week’s plunge.

In this week’s FX Setups, I was looking for prices to retrace to lower-high resistance at prior support. This could, at the very least, allow for cogent risk management after a decisive two-week stretch. The level of 1.2877 could be especially interesting for this approach, as this is the 61.8% Fibonacci retracement of the 2017-2018 up-trend; and this had helped to provide a day of support last week before sellers pushed down to fresh lows.

GBP/USD Two-Hour Price Chart: Resistance Potential Around Prior Support

gbpusd gbp/usd two 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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