Technical Analysis

GBPUSD tumbles lower. Test natural support at 1.2500

GBPUSD falls sharply

The Bank of England raise rates by 25 basis points to 4.5% which was as expected.

The price initially moved to the upside with the high price reaching 1.2614. That was about 6 pips short of the following 100 are moving average 1.2620 at the time (the current 100 are moving averages at 1.26189 – see blue line in the chart above). Buyers turned the sellers, and the next break below the 200 hour moving average at 1.2575 (see green line), increased the selling momentum. The price is also being influenced by a flight into the safety of the US as investors now lean toward a harder landing (at least today). Initial dollars claims spiked to 264K which was the highest level in 19 months. Traders don’t want to say the employment trend go in a “fast break the other way” mode. As job gains beget job gains. Job losses can beget job losses as businesses copycat each other.

The move higher in the US dollar is running a bit counter to the lower rates in the US. Having said that,rates are now off their low levels on the day with the 2 year now down -5.4 basis points after pushing down around -10 basis points earlier in the US session.

Returning to the hourly chart, the GBPUSD tumble has seen the price fall below the 50% of the move up from the April 17 low at 1.25158. The low price just reached 1.25012 – testing the natural support at 1.2500 in the process. There is a old swing area down to 1.24952 (see red number circles). The 61.8% retracement of the move up from the April 17 low comes in at 1.24772. That would be a another downside target on more downside momentum.

Having said that, the sharp fall to the downside – and into support near 1.2500 – may give some sellers some cause for pause as price action is a little oversold (RSI on hourly is around 30). Having said that, with the break below the 1.2546 earlier today (that level was near low price from last Wednesday and was also a swing high going back to April 14), I would expect that level to keep a lid on the pair on a rebound IF the sellers mean business about taking back more control.

Sellers area making a play and have wrestled back control from the buyers, but maybe the pair needs a breather now that a target area has been reached, but look for sellers to reenter if there is a bounce (and a fall below 1.2500 – down to 1.2495 – would be more bearish).

PS Looking at the daily chart below, the buyers had their shot this week on breaches above the 1.2665 level. The high price on Monday reached just above that level at 1.2668. Yesterday, the high price move to a high 1.26793 before rotating back lower. The inability to stay above 1.2665 helped to turn buyers and sellers (the break and holding under the 100 hour MA was another clue as was the tumble below the 200 hour MA).

GBPUSD failed on break above 1.2665 this week.

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