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Sterling Technical Analysis: GBP/USD Tests Support at Prior Resistance

Sterling Technical Analysis: GBP/USD Tests Support at Prior Resistance

2019-05-06 16:09:00
James Stanley, Strategist
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GBP Talking Points:

- The British Pound caught a bid last week after BoE Governor Mark Carney warned that faster rate hikes may be necessary in the UK.

- GBP/USD rallied up to fresh monthly highs on the back of that theme, coupled with a sell-off in the US Dollar last Friday. This keeps the pair in an attractive position for strategies around USD-weakness, looking for the US currency to further its fall.

- DailyFX Forecasts are published on a variety of currencies such as Gold, 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 Pulls Back from Fresh Monthly Highs

The late-week sell-off in the US Dollar was warmly received by GBP bulls, as GBP/USD rallied up to a fresh monthly high on Friday. That bullish move stopped short just shy of the April swing highs, which came in around a zone of Fibonacci resistance at 1.3181-1.3187.

This week’s trade saw an initial gap-lower that was filled in the first few hours of the open, and prices have continued to pull back in the early portion of this week with support showing around prior resistance.

GBP/USD Hourly Price Chart

gbpusd gbp/usd hourly price chart

Chart prepared by James Stanley

I had looked into the matter in this week’s FX Setups, attempting to catch higher-low support in GBP/USD after last week’s rally. The zone has so far helped to hold the lows, and this runs from 1.3087-1.3117; and the big question at this point is whether buyers can remain on the bid.

Last week’s Bank of England rate decision may have some continued pull on the matter, given that BoE Governor Mark Carney warned that faster rate hikes may be necessary. This week’s economic calendar is noticeably quieter out of the UK, with the lone high-impact announcement set to be released on Friday morning with the release of GDP numbers. And there aren’t many directional signs from retail positioning, either, with approximately 55.4% of traders in a net long position via IG Client Sentiment.

This leaves themes in US Dollar price action as one of the primary drivers in the pair.

GBP/USD Four-Hour Price Chart

gbpusd gbp/usd four hour price chart

Chart prepared by James Stanley

The US Dollar: Top or Not?

Last week was very interesting in the US Dollar, where a Wednesday/Thursday post-FOMC rally was hit hard on Friday. But, through it all, GBP/USD retained a bullish posture, including a strong gain on Friday when USD-weakness began to contribute to the theme.

And given this fresh strength showing in GBP after the warning from Mr. Mark Carney, this puts the pair in an interesting spot for strategies of USD-weakness. If the US Dollar does continue to fall, given this fresh warning of potentially hawkish behavior, and the topside of GBP/USD can remain as attractive. This comes at a time when Central Banks in Europe, Japan, China and the United States have all been talking up some form of dovish policy; so, the simple fact that there is a major Central Bank out there going against the grain can produce a workable theme moving forward.

I had looked into this scenario in this week’s FX Setups, looking for an initial move down to support in the 1.3087-1.3117 zone. There’s another potential zone of interest just a little lower, from around 1.3040-1.3053; and below that, the big figure awaits, as this is the same price that helped to set the May low in the zone from 1.2976-1.3000.

GBP/USD Eight-Hour Price Chart

gbpusd gbp/usd eight 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 Gold or 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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