GBPUSD Trend Line Breakout – August 5, 2014

GBPUSD Trend Line Breakout - August 5, 2014

GBPUSD Trend Line Breakout - August 5, 2014This pair has solidified its break below the rising GBPUSD trend line on its 4-hour forex chart, indicating that the uptrend is over and that a reversal is in the cards. However, a pullback might take place before the pair heads further south and starts a GBPUSD trend lower.

Price has found short-term support at the 1.6850 minor psychological level and may be due for a retracement to the broken trend line. Using the Fibonacci retracement tool shows that the 61.8% Fib best lines up with the trend line while the 50% Fib lines up with the 1.7000 major psychological handle, which might also act as resistance.

Stochastic is still moving towards the overbought zone, indicating that bulls are in control of price action for now. With that, price might have a chance at retracing to the Fib levels or the support turned resistance at the trend line.


GBPUSD Trend Reversal

Shorting at 1.7000 with a stop above the 61.8% Fib or trend line and a target of new lows could yield a high return on risk for a swing trade. Adjusting the stop to entry once price tests the previous lows at 1.6850 is a good way to protect profits and minimize exposure.

Last week, the UK manufacturing PMI came in below expectations while the construction PMI released earlier this week indicated a slower expansion in the industry. Later on, the services PMI is up for release and this might also come in below expectations and lead to more pound weakness.

Dashed hopes of a rate hike later on this year have been weighing on the pound in the past few days. Wage growth has been minimal in the UK and hasn’t been keeping up with rising price levels, leading to weaker consumer spending figures. Meanwhile, the recovery in the housing market appears to be stalling with lower mortgage approvals and house prices in the past months.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.