GBP/USD Pullback to Trend Line Support

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GBP/USD Pullback to Trend Line Support

GBP/USD suffered a sharp selloff on Friday as traders closed out positions ahead of the Crimea vote over the weekend. After all, the referendum could result to Crimea seceding from Ukraine, which would then be met with sanctions on Russia imposed by the US and European Union. Such event might lead to overall risk aversion, which might undo most of the pound’s recent gains to the dollar, as further conflict would lead to a flight to safety.

For now though, the uptrend on GBP/USD is still intact since the pair is moving above a rising trend line on its 1-hour time frame. Thanks to Friday’s selloff, it has tested the trend line support once more while stochastic is indicating oversold conditions. This could mean that a bounce is in the cards, but much hinges on the result of the Crimea referendum.

Fundamental events could also have a lot of impact on GBP/USD’s movement, as the BOE is set to release the minutes of its latest monetary policy meeting this week. Also due in the coming days is the claimant count change, which should show whether the UK’s labor market is doing well or not.

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GBP/USD Technical Forecast

The trend line support is in line with the 1.6600 major psychological level, which has acted as resistance turned support recently. It is also situated between the 38.2% and 50% Fibonacci retracement levels on the latest swing high and low on the 1-hour time frame.

A bounce from this area could lead to another test of resistance at the 1.6800 major psychological level. On the other hand, a strong break might lead to a prolonged selloff, particularly if it results from risk aversion and weak UK data.

Take note that the FOMC is set to announce its interest rate decision this week as well, and this could be crucial in determining GBP/USD direction. Confirmation that the Fed will carry on its taper for the foreseeable future might lend support to the dollar and trigger a downside trend line break.

To contact the reporter of the story: Jonathan Millet at john@forexminute.com