GBP/USD recovers and rebounds to major resistance
James Chen, CMT March 7, 2016 12:45 PM
GBP/USD spent last week rising sharply in a rebound from its new 7-year low up to major resistance around the 1.4250 level. This rise occurred as the US dollar fell and worries about a potential UK exit of the European Union (Brexit) partially subsided.
To start the new week on Monday, the dollar initially rose, prompting a GBP/USD turn back down from that 1.4250 resistance. By Monday afternoon, however, the dollar retreated once again, pushing GBP/USD back up to resistance and marginally above it.
From a technical perspective, the currency pair continues as of this writing to trade under its 50-day moving average, despite this past week’s rebound, and remains entrenched within a strong bearish trend. Going forward, pressure on the pound should likely be maintained with the June Brexit referendum drawing closer on the medium-term horizon and a consistently dovish Bank of England disinclined to raise interest rates any time soon.
On the US dollar side of the currency pair, while the greenback persists in vacillating on constantly shifting expectations of another Federal Reserve rate hike, further monetary tightening this year in the US still remains a distinct possibility. This possibility generally continues to support the dollar against other major currencies that are driven by even more dovish central banks, including sterling and the Bank of England.
For these reasons, GBP/USD continues to face headwinds going forward, despite the current rebound. As long as the currency pair returns below the noted 1.4250 resistance level and remains trading under its 50-day moving average, the key downside target continues to be at the 1.4000 psychological support level. With any sustained re-break below that 1.4000 level, the next major downside target remains at the key 1.3500 support level, last hit in early 2009.
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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.