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GBP/USD: Cable Pullback Catches Support, but Can it Hold?

GBP/USD: Cable Pullback Catches Support, but Can it Hold?

James Stanley,
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GBP/USD Talking Points:

- Thursday of this week brings the first BoE ‘Super Thursday’ rate decision of 2019. Complicating the backdrop is the fact that Brexit-day is now just seven weeks away and markets still have no idea what to expect. Nonetheless, GBP/USD put in a consistent bullish run over a three-week-period in January as prices ran from below 1.2500 to above 1.3200; but since then sellers have come back into the equation to push prices back-below the psychological 1.3000 level.

- With such a lack of clarity on fundamental or political themes around the currency, traders would likely want to relegate strategies in GBP to shorter-term scenarios. Below, I look at both bullish and bearish scenarios around GBP/USD.

- DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are 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.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

It’s been an interesting start to 2019 for the British Pound and already with a little over a month into the New Year, and a number of themes have shown around the currency. In the opening days of this year’s trade, GBP/USD plunged down to a fresh 20-month low, crossing below the 1.2500 level in the process. But what appeared to start out as short-cover in response to that downside breakout then turned into a consistent bullish run that lasted for most of the next three weeks, helping to push GBP/USD back-up to the 1.3200 area on the charts.

As this week opened, GBP/USD had a bit of support around the 1.3000 level, but that started to give way around yesterday’s US open. Prices soon tested down towards the 38.2% retracement of the bullish January move at 1.2920, and over the past 24 hours, this area has helped to hold the lows in the pair.

GBP/USD Eight-Hour Price Chart

gbpusd gbp/usd eight hour price chart

Chart prepared by James Stanley

A Backdrop with Unclear Economic and Political Drivers

Thursday of this week brings the Bank of England’s first ‘Super Thursday’ rate decision of 2019. This means that the rate decision will be released with updated quarterly forecasts along with an accompanying press conference from BoE Governor, Mark Carney.

But that’s not the only fundamental item of interest around the British Pound at the moment, as Brexit-day is now just seven weeks away and there remains an utter lack of clarity on how exactly this might take place. This keeps ‘Hard Brexit’ options on the table which have traditionally been a bearish driver on the Pound; but even that could be difficult to base strategy around given last month’s firm topside run in the currency.

At this stage, plotting for longer-term trends can remain as a challenge; and there’s a chance that this remains as the case until more clarity around Brexit shows up. From a trading perspective – this means that traders would likely want to relegate exposure in GBP to shorter-term themes, looking to work with support or resistance levels that can open up the possibility of attractive risk-reward ratios.

GBP/USD Daily Price Chart: An Indecisive and Volatile Past Few Months

gbpusd gbp/usd daily price chart

Chart prepared by James Stanley

GBP/USD: The Bullish Side of the Coin

Given the backdrop around the UK at the moment, this may be a difficult theme for fundamental traders to work with. But, facts are facts, and in the month of January, GBP/USD put in a significant topside rip even as Brexit remained brutally unclear. For traders looking at the long side of the British Pound, the motivation would likely be technical in nature, looking for that January advance to stage some element of continuation.

A hold of support above the 38.2% Fibonacci retracement of that bullish trend can open the door for topside setups, and there’s another potential area of support a bit lower on the charts from the 50% marker of that same move up to the 1.2850 level.

GBP/USD Four-Hour Price Chart

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

GBP/USD: The Bearish Scenario

The bearish side of GBP/USD can be attractive on short-term technical or perhaps even long-term fundamental themes. From the short-term technical perspective, traders would be looking for a continuation of the bearish move that started in the early portion of last week; while the longer-term fundamental theme would likely be looking for Brexit dynamics to steal center-stage again to help push the pair back down towards the 1.2750-1.2800 area. A pullback with a show of resistance at or around the 1.3000 level can open the door to bearish strategies in the pair, looking for a deeper test down towards the 1.2828-1.2850 support zone. Alternatively, should no such pullback develop, a downside break-below 1.2920 could be investigated by traders looking to implement bearish breakout strategies in the pair.

GBP/USD Two-Hour Price Chart

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 Q4 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

Contact and follow James on Twitter: @JStanleyFX

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