technical analysis GBPUSD

Technical analysis of GBPUSD

Cable has been unusually strong recently amid the general weakness of the dollar and the lack of any meaningful news from ongoing Brexit negotiations. Today’s technical analysis of GBPUSD looks at the four-hour chart ahead of the resumption of the Brexit talks next week.

The Bank of England’s comparative positivity at its last meeting gave the pound a boost, as did a fairly strong bounce back of British industrial performance indicated by this month’s data so far. However, Tuesday’s claimant count change at 94,400 was very negative, suggesting that the outlooks for the job market and consumer spending in the UK remain weak.

The most important resistance on this chart is the latest high around $1.32. Low support could be the psychological area of $1.25, but the immediate round number of $1.30 and zones from moving averages will probably be important over the next couple of weeks before lower areas might be tested.

Technical indicators on GBPUSD H4

 

The buy signal from moving averages is a bit less strong this week. The 50, 100 and 200 SMAs remain each above slower lines but price has recently tested the first of these. The space between the 50 SMA from Bands and the 100 has also shrunk significantly since Monday’s opening. In the short term, the current value area between these lines will probably remain important; a deep retracement might be capped by the next such area between the 100 and 200 SMAs.

In terms of saturation, both Bollinger Bands (50, 0, 2) and the slow stochastic (15, 5, 5) remain close to neutral. The latter hasn’t displayed a clear overbought signal since the first week of August; this might confirm the impression from price action of lower momentum. Parabolic stop and reverse has also flipped several times since the end of last month. Volume has been somewhat lower this week compared to the weekly average in July, but buying remains fairly high.

Price action and Fibonacci

 

Recent price action at a glance suggests less momentum upward and consolidation. The fairly long tails around and just above $1.30 appear to confirm this area’s importance as a support. The downward engulfing pattern from 12.00 GMT on Tuesday following claimant count change could indicate a retracement coming up next week; however, confirmation should be sought by monitoring the reaction to fundamental events.

The 50% area of the daily Fibonacci fan is fairly far above the top of this chart by now, so a test of this in the near future is unfavourable in the context of weaker momentum upward. Meanwhile the 61.8% zone could function as an important support coming as it does in the value area between the 100 and 200 SMAs and being not very far below the former.

Key fundamental events: Brexit negotiations

 

Talks between the UK and EU with primary focus on trade are due to resume next week. Any snippets of information from these could affect sentiment on the pound significantly. Historically, the possibilities of ‘hard Brexit’ and ‘no deal’ have had significant negative effects on the pound, so these might be observed again if the tone turns sour. News of a likely deal though could boost sterling.

Ultimately, it’s impossible to predict what’s going to happen, so monitoring the news next week is essential for traders of the pound. Volatility for the pound could be higher in the second half of August. Traders are also looking ahead to British annual inflation on Wednesday next week and Gfk consumer confidence late on Thursday night GMT.

Technical analysis of GBPUSD: summary

 

The technical picture for cable still looks quite positive although new highs don’t seem likely over the next few days. The main efforts of short-term traders will be to monitor behaviour in oversold and of course following news of the negotiations closely.

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