Technical analysis of GBPUSD
Cable like other pairs with the pound has been volatile this week as markets have been expecting confirmation of whether a trade deal might be agreed between the UK and EU. The latest last night is that an agreement or lack thereof should be confirmed by Sunday evening GMT. Today’s technical analysis of GBPUSD looks at the four-hour chart.
The main high resistance in focus here is the latest high of 30 months, $1.35387. Low support is less clear, although the psychological area of $1.30 somewhat below the bottom of this chart might be a barrier to downward movement. The zone of the most recent bounces around $1.324 might also be in view later today and tomorrow.
Technical indicators on GBPUSD H4
Moving averages give a weak buy signal at the time of writing: all three of the 50, 100 and 200 SMAs are successively above slower lines; however, the first two are above the price. The final key support from moving averages is the 200 SMA slightly above $1.32. To the upside, the value area between the 50 and 100 SMAs is likely to be a first challenge against any attempt at fresh highs.
Price has now moved out of oversold based on Bollinger Bands (50, 0, 2). The slow stochastic (15, 5, 5) at about 24 does not signal oversold but is very close to the zone of selling saturation. Volume meanwhile has been significantly higher this week compared with the average in November, understandable given the context of the trade negotiations.
Price action and Fibonacci
Price action this week has been confused which is also understandable in the context, with a number of large up and down candles and no clear overall direction. Both Tuesday’s engulfing pattern and today’s interrupted three crows should probably be taken as confirming volatility rather than indicating the establishment of a direction.
Neither the 50% nor the 61.8% zones of the weekly Fibonacci fan are within striking distance for the time being, but it seems possible that they could function as resistance and support respectively next week if the negotiations conclude one way or the other. The 61.8% seems to be the stronger given that several breakthroughs of the 50% to the upside were achieved over the summer.
Negotiations and possible scenarios
Among the current sticking points in the negotiations are fishing rights and Conservative worries (real or imagined) that the EU could maintain ‘control by the back door’ if the UK is required to align on regulations for a certain time after the transition period. Although nothing is certain, markets appear to have priced in a measure of agreement on the basics but not a full entente cordiale.
Another possibility is the breakdown of talks without any agreement, possibly leading to chaos at the end of the transition period in the new year. This would mean losses for the pound in most of its pairs. Finally and least likely there’s the chance that the two sides might suddenly pull a complete agreement out of the hat this weekend. Such a situation would be very positive for the pound and might drive new post-referendum highs for cable over the next few weeks. However, a sudden consensus does not look at all favourable as of today.
Technical analysis of GBPUSD: summary
The technical picture for cable is overall somewhat positive, with a strong uptrend still active and no sign of overbought. On the other hand, everything’s to play for at the trade talks. From a fundamental perspective, the upside seems to be limited, but nevertheless holding any position this weekend is particularly risky.
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