GBP/USD Forex Signal: Bearish on Weak Pound

Adam Lemon

We are now seeing a clear bearish breakdown below the neckline, so technically the signs are that today will be a down day in this currency pair.

 

Last Thursday’s GBP/USD signals were not triggered, as none of the key levels identified were reached that day.

Today’s GBP/USD Signals

Risk 0.75%.

Trades may only be entered before 5pm London time today.

Short Trade Idea

  • Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of 1.3759.

  • Put the stop loss 1 pip above the local swing high.

  • Adjust the stop loss to break even once the trade is 20 pips in profit.

  • Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

Long Trade Ideas

  • Long entry following a bullish price action reversal on the H1 time frame immediately upon the next touch of 1.3588, 1.3560, or 1.3527.

  • Put the stop loss 1 pip below the local swing low.

  • Adjust the stop loss to break even once the trade is 20 pips in profit.

  • Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

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.

GBP/USD Analysis

I wrote last Thursday that the price had room to rise if it could clear the area of recent inflective swing highs just above where the price was at the start of the London session that day. If we had gotten two consecutive hourly closes above 1.3704 during the first half of the London session, I was ready to take a bullish bias until 1.3750.

This did not work out well as after the price got established above 1.3704 it went sideways during the rest of the day, before falling decisively the next day after failing to reach 1.3750.

The technical picture has become considerably more bearish. The price chart below shows a medium-term bearish head and shoulders pattern, with a neckline at 1.3621 which was formerly support. We are now seeing a clear bearish breakdown below the neckline, so technically the signs are that today will be a down day in this currency pair.

Markets have seen risk-off flow into the U.S. dollar, and this is dragging the price down now. Furthermore, the British pound is now moving as one of the weakest major currencies as a particularly “risky” currency – it gains more during risk on and loses more during risk off environments.

I think we will see the price continue to fall but as there are several nearby support levels, it is difficult to say where it might find at least a temporary bottom. The support level at 1.3527 looks especially strong. I would take a long trade from a bullish bounce there, but I am most interested in a short trade from a bearish reversal at 1.3621 if that level now begins to act as new resistance.

GBP/USD chart

Concerning the USD, there will be a release of CB Consumer Confidence data at 3pm London time. There is nothing of high importance scheduled today regarding the GBP.

Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.
Learn more from Adam in his free lessons at FX Academy

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