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Sterling Technical Analysis: GBP/USD Rallies Ahead of FOMC, BoE

Sterling Technical Analysis: GBP/USD Rallies Ahead of FOMC, BoE

2019-04-30 16:00:00
James Stanley, Currency Strategist
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GBP Talking Points:

- GBP/USD is in focus as the next two days bring Central Bank rate decisions from each economy represented in the quote. The Federal Reserve announces their rate decision tomorrow, and Thursday morning brings the Bank of England’s Super Thursday rate decision, which means a press conference and updated projections to go along with the rate decision.

- GBP/USD put in an aggressive bearish breakout last week, quickly pushing down to the confluent area around 1.2900. But selling pressure soon dried up, and prices have been retracing-higher ever since; setting the stage for a very interesting backdrop ahead of the next two days of rate decisions.

- DailyFX Forecasts are published on a variety of currencies such as the US Dollar or the Euroand 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 GBPUSD? Check out our IG Client Sentiment Indicator.

GBP/USD Breakout Bounces from Support at 1.2900

GBP/USD continues to recover following last week’s breakdown, and today has brought a strong pace of gains ahead of tomorrow’s FOMC rate decision and the ‘Super Thursday’ Bank of England event on the day after. Leading into this bounce, GBP/USD had broken down to fresh two-month lows, pushing below the support side of a descending triangle formation that had been brewing since mid-March.

The 1.2900 area was the initial target looked at for bearish breakout themes in GBP/USD last week, continuing a downside run that had started the week prior as GBP/USD price action built-in resistance off of the 1.3117 level.

GBP/USD Four-Hour Price Chart

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

At this point, GBP/USD prices have burst back-above the bearish trend-line that made up the resistance side of that triangle; and along the way, the 1.3000 level was taken-out in fast order. And while this may be just a short-squeeze scenario following last week’s breakdown, given the heavy calendar over the next few days, traders would likely want to move forward with a bit of caution on either side of the argument.

I had looked at bearish continuation scenarios in GBP/USD in this week’s FX Setups; but the resistance zone that was being followed for lower-high resistance failed to quell the rally, leaving more questions than answers around the pair ahead of the oncoming Central Bank onslaught; and this leaves potential on either side of GBP/USD depending on how the trader wants to move forward around the US Dollar.

GBP/USD Two-Hour Price Chart

gbpusd gbp/usd two hour price chart

Chart prepared by James Stanley

GBP/USD – The Bullish View

GBP/USD currently has an imbalance amongst retail traders in the IGCS data, with 1.54 traders long for every one that is short, as of this writing. This isn’t a large enough imbalance to get excited around bearish continuation strategies, but it does highlight the fact that many retail traders are looking to play a bounce in GBP/USD.

At this stage, the long side of GBP/USD could be considered a tenuous theme, as we have but a couple days of strength following last week’s bearish breakout. But – the degree to which bulls have returned highlights the potential for that theme to continue to build. Resistance at 1.2960-1.3000 didn’t even slow down buyers on the way up, and right now prices are looking very stretched on short-term charts.

This opens up the potential for a pullback to short-term support at prior resistance, at which point bullish strategies can become attractive again. The prior area of resistance from 1.2976-1.3000 could be re-utilized as potential support for traders looking to institute bullish strategies on GBP/USD.

GBP/USD Hourly Price Chart

gbpusd gbp/usd hourly price chart

Chart prepared by James Stanley

GBP/USD – The Bearish View

This market view would likely need to be coupled with a bullish view on the US Dollar, as Cable bears will likely have very little power without participation from the US Dollar. But – given last week’s USD breakout and the drivers on the calendar for the next couple of days, GBP/USD bears could incorporate the assumption that the current bullish move is a short-squeeze scenario; instead looking to fade this rip in the direction of the longer-term trend.

For that theme, there are two areas of potential, both of which have been in-play this month. The prior resistance zone from 1.3087-1.3117 could be re-utilized. This is the same zone of resistance that was used to anticipate the earlier-month breakout, and should this zone come back into play, with a show of resistance, and the door could soon re-open to downside themes in GBP/USD.

If that’s unable to hold the highs over the next couple of days, a deeper area of resistance potential comes into play, and this is the same zone that held the early-April highs that runs from 1.3181-1.3187. If price action is able to break-above this zone, then likely something else is going on; whether it be from a US Dollar breakdown or some very positive developments on the Brexit front. Nonetheless, this could serve as a form of invalidation to the bearish approach, and that can, at the very least, make the risk management of the situation relatively clear-cut.

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 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 an abundance 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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