GBP Finds Fibonacci Support

The pound saw a sharp correction at the end of last week which retraced back to the 38.2% Fibonacci line. If this gives way, the 50% line will prove tougher to break, as it has acted as a pivot point before.

The market shrugged off the UK GDP figures which were a big miss early on in the week. Q1 2015 GDP came in at 0.3% q/q, down from 0.6% the previous quarter. US dollar selling ensured the pound was still bid higher. The Cable came unstuck later on in the week as the Manufacturing PMI fell from 54.4 to 51.9 and the US dollar was seen as a good buy.

The Construction and Services PMIs are both due early this week and the market will be eagerly awaiting the result of the UK general election on the 7th May. Both Labour and the Conservatives are even on 34% each, which will likely lead to a hung parliament. The market will likely be volatile as each new poll is released leading into the election.

The chart shows just how large that sell off was as it erased all of the gains made in the first half of the week and retraced back to the 38.2% Fibonacci level. The Stochastic Oscillator shows the momentum certainly on the bearish side as it moves from oversold at pace. We could see a push down to the 50% Fib level as the market gains volatility ahead of the election, but watch for the 100 day MA in between. A cross of the 20 EMA over the 100 day SMA could provide a bit of bullish pressure as the market see an end to the long term bearish trend.

Resistance for the GBPUSD pair is found at 1.5260, 1.5334 and 1.5500. Support can be found near the current level at 1.5129, with further support at the 50% Fib level at 1.5026, and 1.4900. The 50% level looks like it will be a sticking point for the price and will make a good target for any short term shorts out there.