What to Make of the New Low in GBP/USD

What to Make of the New Low in GBP/USD

GBP/USD was bullish for most of February eventually finding resistance at 1.5550, which was around the support of a previous consolidation range in November. It then retreated and gave signs that the bullish correction was over when price fell below February’s rising trendline. After last Friday’s jobs report which gave the USD a boost cable fell below a key support/resistance pivot around 1.52 while the daily RSI fell below 40. Furthermore it returned below the 50-day simple moving average (SMA). These were additional signs of bearish continuation.

GBP/USD Daily Chart 3/12
gbpusd daily chart 3/12
(click to enlarge)

New Lows on the Year: This week, GBP/USD started with a couple sessions of consolidation on Monday and Tuesday but was on the move again on Wednesday (3/11). In the daily chart, we can see that price has now cracked the previous low on the year around 1.4950. Cable is finding some intra-session support as it tags 1.49, but given the intact prevailing downtrend, and the diverging monetary policy outlook for the BoE versus the Fed, GBP/USD is likely to fall further. But don’t get too excited. There is a major support area below 1.49.

2013-Low: It won’t be further lower before GBP/USD hits 1.4815, the 2013-low seen in the weekly chart.

GBP/USD Weekly Chart 3/12
gbpusd weekly chart 3/12
(click to enlarge)

Oversold in Sideways Market: While the GBP/USD trend has been bearish since mid-2014, the weekly chart shows that it has been essentially sideways since 2012. Note that the 200-, 100-, and 50-week simple moving averages (SMAs) have been basically moving sideways which also reflects a sideways market in the long-term.

Without a secular downtrend, if the RSI falls below 30 (oversold), we should caution against adding too much exposure to the downside. If we see a bullish divergence over the next couple months with price finding support around or above 1.48, THEN we might want to consider the medium-term bullish correction scenario.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.