This market remains interesting as the price seems to be building a base and not falling to new long-term lows as the typically positively correlated EUR/USD currency pair. The GBP/USD currency pair is instead threatening to make a reversal, although it still has some more to do before it can be said that this is starting to happen. Let’s drill down and take a look.
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GBP/USD Fundamental Analysis
The US Dollar fundamental outlook is looking notably weaker after last week’s slew of data which dramatically changed expectations concerning near-term Fed rate hikes. Markets were expecting two more hikes of 0.25% each before the end of 2026 before weaker than expected PCE Price Index data and, even more notably, weaker Average Hourly Earnings and jobs data which was quite a surprise. According to the CME FedWatch tool, markets now see only one hike, in December, as likely to happen, and an earlier hike this month as very unlikely to happen. Despite this, US GDP data was revised upwards, and the US stock market (at least in tech) just made a new record high, so there are still plenty of fundamental reasons to see the US Dollar as relatively strong.
The British Pound’s fundamental outlook is mixed. UK inflation at 3.1% and elevated energy costs are encouraging expectations of further Bank of England tightening, supporting Sterling, but slower wage growth and falling job vacancies complicate the case for higher rates. The BoE has held Bank Rate at 3.75%, with its next decision due on 5 November. Meanwhile, rising gilt yields reflect inflation and fiscal concerns rather than an unambiguously attractive return for investors, so they have not reliably strengthened the currency. GBP/USD therefore remains vulnerable to Dollar strength, although firmer UK data or clearer guidance towards a November hike could provide support.
This means fundamentals and sentiment are weakening for the USD a little, but not changing much for the GBP.
GBP/USD Technical Analysis
The past few days day has seen a potentially very important technical development – the rejection of the support area below 1.3200, which is very close to a long-term low. We have just seen a double bottom at 1.3183, another one at 1.3193, and a bullish square root (maybe even a nascent bullishly tilted head and shoulders pattern) basing off the round number at 1.3200.
It is important to note that for almost one and a half years, the price of this currency pair has been consolidating between approximately 1.3150 and 1.3650. So a bullish reversal in this area might carry a lot of potential.
Another bullish technical factor is the relative weakness of the Pound compared to the Euro, with which it is typically strongly positively correlated.
Bulls face resistance at the half number of 1.3250. More cautious traders might want to look for a long trade only after 1.3250 has been decisively cleared. It is possible that this resistance level will hold.
GBP/USD H1 Price Chart – Potential Bullish Reversal from 1.3200 Are
My Take on the GBP/USD
I think the picture is looking not only increasingly bullish, but like there is a swing or even position trade opportunity setting up on the long side. This currency pair tends to be better traded from breakouts than on dips, so it could be wise to go long if there is a strong bullish close at the end of today’s New York session, near the top of the day’s range and above 1.3250.
Review, Support & Resistance Levels
My previous GBP/USD free signal on 30th September gave a profitable short trade from the bearish pin bar rejecting the resistance level at 1.3294.
New trades should only be entered prior to 5pm London time today.
Long Trade Idea
Go long following a bullish price action reversal on the H1 timeframe immediately upon the next touch of 1.3183.
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 ride.
Short Trade Idea
Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of 1.3250, 1.3273, or 1.3294.
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 impact scheduled today concerning either the British Pound or the US Dollar.
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