This currency pair finally broke down to make a new long-term low last week, but the recovery this week means that we do not yet know if this was a decisive breakdown. In the Forex market, breakouts are often not decisive, and trends can be unreliable and hard to find. Having said that, this is one of the currency pairs that has historically shown some propensity to trend reliably.
It is important to note that when a breakdown is driven by a relevant central bank meeting, as was the case here with the Fed’s hawkish tilt two weeks ago, it is quite likely to be important, as these fundamentally driven moments can be the start of major trend changes or reversals.
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Have we reached a decisive moment between bulls and bears?
After consolidating for such a long time, we are seeing signs that things are becoming clearer, clarifying the outlook for this currency pair, both in terms of the British Pound and the US Dollar, although clearly main driver here is the greenback.
The British Pound does not have much at stake right now even though the Bank of England had a policy meeting recently with a slightly more hawkish vote on its interest rate. The vote might have given the Pound a minor tailwind – last week, we saw the Pound outperform most other currencies.
On the side of the Dollar and general market sentiment, the US Dollar Index is firmer and is now rising again, heading towards the 13-month high price it made last week. We might be close to another major advance by the US Dollar.
GBP/USD Technical Analysis
Let’s look first at the US Dollar Index (DXY). This made a new 13-month high last week but was ultimately held by the horizontal resistance level at 101.39. After selling off weakly from there over two days, the price is rising again, so we might get another test of this resistance level. If we do get a bullish breakout, even if the Pound retains a little strength, it will still send this currency pair lower.
Turning now to the GBP/USD, we can see a bullish picture this week, although the bullish move does not look notably impulsive which makes me doubt it. However, we have a series of higher lows, which is a bullish sign, and a new “stairstep” support level has been printed by this price action at $1.3225. Whether this level holds or breaks down is likely to be today’s pivotal event in this currency pair. If it holds, we will see the price rise again. If it breaks down, we could see a resumption of the bearish trend and new lows.
My Take on GBP/USD
I think day traders might look for short trade on bearish price action below $1.3225 once the breakdown looks clearly decisive – this is best indicated by a failed test from below of the level following a breakdown. The problem for bears is that it is not clear how far such a move might run, as there are several bullish inflection levels nearby, so that could be choppy and unpredictable. If the support level at $1.3225 holds, it will eventually send the price higher, and that might be a smoother rise. The problem is that there is new resistance at $1.3247 (confluent with the quarter-number at $1.3250).
Overall, it might be hard to get more of a scalp out of this pair as long as the price remains between $1.3140 and $1.3268.
Support & Resistance Levels
My previous GBP/USD signal on 25th June had me looking for a short trade from $1.3164, but the price only turned bearish quite a way above that, so it was not a good call. It was enough to keep out of trouble, as the bearishness turned around dramatically and we saw the price advance higher later in the day.
Risk 0.75%.
Trades may only be entered prior to 5pm London time today.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.3225, $1.3100, or $1.3000.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to run.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.3247, $1.3268, or $1.3325.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning either the British Pound or the US Dollar,
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