Could GBP/USD turn lower from these key Brexit resistance levels?

The pound made headlines yesterday as it rallied sharply to a new post-Brexit high of about 1.3940 against the dollar. But it wasn’t able to hold onto its gains as the dollar made a comeback across the board.

The pound made headlines yesterday as it rallied sharply to a new post-Brexit high of about 1.3940 against the dollar. But it wasn’t able to hold onto its gains as the dollar made a comeback across the board. The greenback bounced perhaps because of the fact that the implied probability of the Federal Reserve hiking interest rates three times this year rose to 55% from about 48% on Tuesday. This brought the market’s view in line with the Fed’s own projections. Though we had a stronger-than-expected industrial production figure out of the US, there was no obvious trigger for the increase in rate hike expectations. Further strengthening of US data should help to encourage the Fed from tightening its belt. Meanwhile the FOMC knows very well that there are increased risks that the dollar will likely appreciate in value over time as the Fed further tightens its belt. But the dollar’s weakness throughout 2017 and at the start of this year means, unlike for the ECB, that the exchange rate isn’t a big issue for the Fed when it comes to making a rate hike decision – at least for now anyway. So, it could be that the soft dollar has actually helped to raise market’s expectations about US rate hikes.

If the dollar were to make a more meaningful comeback then out of the major currencies, those where the central bank is still dovish should lose out against the greenback. But even the rallying pound could come under some short term pressure, not least because of technical reasons. Yesterday saw the GBP/USD rally sharply into a key resistance area which we had previously identified HERE. As can be seen on the chart, the cable probed liquidity that was resting between 1.3835 and 1.4015, the pre-Brexit low. Once support, this area was always going to provide some resistance and so it proved yesterday as price gave back a big chunk of its advance here. Whether or not resistance will hold here for too long remains to be seen, however. Indeed, the GBP/USD was trading higher again at the time of this writing. But there’s still the potential we could see at least a short term top in this region given the technical and psychological significance of these levels. The sellers will need to chop some wood, though, as the trend is clearly bullish for now. There are lots of support levels that need to be taken out in order for the bulls to lose control in a meaningful way. Among other levels, 1.3500/5 is important to watch as this was the base of the latest breakout. If this level fails to hold as support then we may see a sharp pullback towards the next support at 1.3655, 1.3610 or possibly 1.3555 next. 

Source: eSignal and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account