One of today’s biggest moves has been in GBPUSD, which has dropped 150 pips after setting a a new 2-month high at 1.5550 earlier today. Beyond the broad-based dollar strength, the pound has also been hit by weaker-than-expected Q4 Business Investment data, which fell -1.4% vs. an expected gain of 2.0% (last quarter’s reading was also revised down 0.7% to -1.4%). Earlier this week, my colleague Fawad Razaqzada noted that the pair had peeked out above the 23.6% Fibonacci retracement of last year’s second half drop, but with today’s reversal, it looks like that move may have been a false breakout. Astute traders will note that the pair is also forming a large Bearish Engulfing Candle* on the daily chart (not shown), signaling an abrupt shift from buying to selling pressure.
Adding to the short-term bearish technical evidence, the pair has been forming a rising wedge pattern over the last month. Though this pattern is created by a series of higher highs and higher lows, the shallower slope of the highs suggests that the bulls may be losing momentum. If the unit breaks below its current support level at 1.5400, we could see a more substantial drop emerge. Further bolstering the bearish case, the rising wedge pattern is confirmed by triple bearish divergences in both the MACD and RSI indicators, showing clearly receding bullish momentum.
At this point, the outlook for GBPUSD seems relatively straightforward: bulls will be on edge unless the pair can get back above long-term Fibonacci resistance at 1.5480 (and ideally the yearly high at 1.5600 as well), and a break through trend line support at 1.5400 could pave the way for a continuation down to the Fibonacci retracements of the February rally at 1.5320 (38.2%), 1.5250 (50%), or 1.5180 (61.8%).
*A Bearish Engulfing candle is formed when the candle breaks above the high of the previous time period before sellers step in and push rates down to close below the low of the previous time period. It indicates that the sellers have wrested control of the market from the buyers.
Source: FOREX.com
Recommended Content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.