GBP/USD: Range Break Opens Up Possibilities
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This currency pair finally breaking out of its dominant consolidative area. We finally got some more decisive catalysts this week, with a MoU between the USA and Iran signed, lower than expected UK inflation data released yesterday, and the US Federal Reserve’s policy meeting giving a clear hawkish tilt as the “dot plot” changes to show a consensus expectation of one rate hike before the end of 2026, up from zero previously.
When the price is driven out of an area of comfort by a relevant central bank meeting, it is quite likely to be important to take note of that, as these fundamentally driven moments can be the start of major trend changes or reversals.
Is the Road Clear to More Direction?
Why is the current moment full of promise for traders of this currency pair? Because after mostly trading sideways 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.
The British Pound does not have much at stake right now, although the Bank of England will be holding a policy meeting today which should be carefully watched, and which could be important. Any change to its interest rate would be a major surprise, but the Bank’s forecasts and projections will be closely watched. Also, the voting on interest rates will be watched for any deviation to the expected 1-0-8 pattern.
On the side of the Dollar and general market sentiment, although we have solid risk-on sentiment, the US Dollar Index is firmer and is continuing to rise.
GBP/USD Technical Analysis
We see the clear bearish breakdown below the range which has been dominant for over one month now, between about $1.3300 and $1.3500. The Fed meeting yesterday sent the price below this level. What is truly exciting is how the price made a bullish retracement a few hours ago to retest the support turned resistance level at $1.3319, failing to break above it, which is a bearish sign.
We now see the price travelling lower, printing new 2-month lows, showing some bearish momentum within a relatively “blue sky” area. This suggests that the price is likely to keep falling until it reaches a key support level, with the nearest such level sitting at $1.3236, so the price could easily fall for another fifty pips or so.
It is possible the price might bounce at $1.3236, or that support might kick in a bit earlier than that at the quarter-number of $1.3250.
My Take on GBP/USD
I think the best approach here will be to hope for the price to pull back again and retest the resistance level at $1.3319, and then to look to enter a short trade initially targeting $1.3236. My preferred method is to wait for one or two candlesticks which show firm and decisive rejection. The reward to risk ratio also must be attractive – if the trigger candlestick set up is too big, it could make it an unattractive trade.
Anyone looking for this trade should watch out for the Bank of England policy meeting later today, and ideally not enter any trade until that meeting is fully over. It could be this meeting that sends the price back up to $1.3319 to generate the set up.
Support & Resistance Levels
My previous GBP/USD signal on 16th June showed I was correct to see the resistance level at $1.3422 as pivotal, as the lack of a clean bullish breakout during the London session was a signal not to go long.
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 $1.3236 or $1.3216.
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 $1.3319 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 the US Dollar. Regarding the British Pound, there will be a policy meeting of the Bank of England at Noon London time.
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