Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Chart Of The Day: Pounded GBP/USD Could Regain Poise 

Published 04/29/2022, 09:30 PM
Updated 03/11/2024, 07:10 PM

This article was written exclusively for Investing.com

Following a sharp two-week drop, there are good technical and fundamental reasons why the GBP/USD could at least stage a decent recovery from here, and potentially even bottom out. 

For a start, you don’t need any technical indicators to tell you sterling is severely oversold, having fallen in each of the previous 6 sessions. It is very uncommon for a relatively stable currency not to bounce after such an extended decline.

With all due respect, this is not the Turkish lira or some other troubled emerging market currency. Also, the Bank of England is not doing what the Bank of Japan has done, so don’t expect a similar move to the JPY/USD

Interestingly, the cable has found some support today around the psychologically important 1.25 handle, which happens to mark the 61.8% Fibonacci retracement level against the move up from the March 2020 low.

It is also worth pointing out that the next big figure of 1.20 also happens to be around a Fib level (78.6% retracement), although I am not necessarily expecting the cable to get there—not unless the BoE walks back significantly from recent hawkish rhetoric, or the Fed becomes significantly more hawkish.   

GBP/USD Daily

If you like indicators, the Relative Strength Index (RSI) has reached severely “oversold” levels of

There are more reasons why a rebound is on the card. In response to the start of the pandemic in 2020, the distance between the GBP/USD and the 200-day average was about 10% at its peak, before that gap started to close as the cable recovered. This time, that gap is around 8%, but we have not had another pandemic to expect it to remain this wide for too long. If anything, the BoE is set to tighten its policy by another 25 basis points in the week ahead, and potentially more in the coming months. 

For the avoidance of doubt, it is worth pointing out that I am not necessarily calling the bottom here. Rather, I do think that as a minimum we will get a decent bounce of at least a couple hundred pips. My extended objective is around the next psychological level of 1.3000, which also happens to be the base of the breakdown. 

It is possible that the cable may remain in a downtrend for a while, given the Fed's desire to front-load rate hikes. So, any bounce we get here should be treated as a rebound in a wider downward trend. As such, it is imperative that traders who are, or are going to be long around current levels book at least some profit near resistance levels, for the downtrend could resume at any moment.  

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.