GBP/USD Forex Signal: Showing Some Weakness from $1.2000

UK inflation data came in higher than expected at 11.1%.

My previous GBP/USD signal on 18th October was not triggered, as there was no bullish price action when the two support levels which I had identified that day were first reached.

Today’s GBP/USD Signals

Risk 0.75%.

Trades may only be entered before 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 $1.1822, $1.1721, or $1.1602.
  • 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 $1.2003 or $1.2080.
  • 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 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 in my previous forecast on 18th October that the technical picture had become more bullish but that the bullish movement was showing signs of running out of steam, so I was expecting a retracement to support levels which might provide a good long trade opportunity.

I was right about the price making a bearish retracement to those two support levels, but neither of them was supportive, and the price broke below both.

This was several weeks ago, and the picture is quite evolved now. We have seen the US Dollar sell off over recent weeks, and although the British Pound has not been the strongest currency lately, it has been firm enough to advance strongly against the greenback. However, we saw the price firmly reject resistance confluent with the big round number at $1.2000, and the price action has been less bullish since then, so we may be in for a period of consolidation before another attempt will be made at $1.2000.

There was a release of UK CPI (inflation) data this morning showing that inflation has again increased above expectations over the past month, with the annualized rate at 11.1%, the highest seen since 1981. However, the market reaction by the Pound to this news was quite minor.

Over the short term, there is an obvious support level close to the current price at $1.1822. I think this is quite likely to be today’s pivotal point. If it continues to hold up as support as the London session gets underway, we will likely see an up day. If it breaks down, we will likely see the price continue to fall to the next lower support level at $1.1721.

I would be comfortable taking a small-sized long trade from a bullish bounce at $1.1822. Scalpers may also find opportunities on the long side at this level.

GBP/USD

Regarding the GBP, the Governor of the Bank of England will be testifying before the UK Parliament at 2:15pm London time. Concerning the USD, there will be a release of Retail Sales data at 1:30pm.

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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.

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