We have reached an interesting moment for the GBP/USD currency pair where the bearish case has become increasingly convincing for a few reasons, most notably last week’s hawkish speech by Fed Chair Paul Warsh at the Jackson Hole symposium, which has shifted the market’s expectation of an imminent US rate hike. Technical factors were already looking bearish after a head and shoulders pattern broke down following a failure to rise to a fresh 6-month high price, with failure to advance being a leading bearish indicator before the breakdown. The fact that the price is near the high of its multi-month range is another factor bringing bearish anticipation.
The GBP/USD currency pair is certainly going to be in the focus of Forex analysts today.
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GBP/USD Outlook: Stronger Dollar Keeps Bears in Control
It is worth noting that the British Pound is one of the stronger major currencies, but it is not quite strong enough to save it from a strengthening US Dollar, which remains not far from its 2-week high price. Still, it could be worth paying attention to this if the situation becomes more bullish.
The US Dollar is looking likely to stay strong, although there are some high-impact data items due this week which could trigger a dovish shift and that might cause another reversal. Today, there will be a US-Dollar related release, although this tends not to be especially high impact.
There is not much in the way of important data releases today, so trading in the Forex market is likely to be mostly technical and speculative.
Survival of Resistance at 1.3554 a Bearish Indicator
I already mentioned the failure to make a new 6-month high. What I will add to that are the not one but two bearish head and shoulders price chart patterns which broke down, and the perfect flipping of more than a single support level to become new resistance. A great example of this is the resistance level at 1.3554 which has suppressed the price over the past few hours, and which might trigger another leg down today.
Another bearish factor is that for the last week, we have seen a clearly impulsive move lower, which outpaced the earlier climb, and which flipped support to resistance without much of a struggle.
Bears should watch out however, despite the likelihood that we are going to see some move lower as at the time of writing, because there is likely to be some support kicking in as soon as 1.3525, stretching all the way down to 1.3499, and this zone is confluent with the major round number at 1.3500 which adds to its weight.
GBP/USD H1 Price Chart
My Take on the GBP/USD
I see the best opportunity here as likely to a quick short scalp down to the 1.3525 area, but after that, it might be best to stand aside and wait to see what happens as the price approaches 1.3500. It could be a strong bullish reversal but is more likely just to become a choppy mess that you don’t need and shouldn’t want to get involved in.
Support & Resistance Levels
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 $1.3514, $1.3500, or 1.3478.
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 Idea
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.3554, 1.3570, 1.3600.
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.
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