Top Story

GBP/USD could extend drop ahead of UK election

Last week saw the GBP/USD drop sharply as the stay above 1.30 proved to be short-lived, as we had long expected. The drop does not necessarily point to a trend change, but it does show market participants are edgy ahead of the UK general election next week. With some key short-term support levels broken, the cable may weaken further in the coming days, especially if this week’s US economic pointers surprise to the upside.

As can be seen from the weekly chart, the cable broke cleanly below short-term support at 1.2865-90 area last week. At the start of this week, the GBP/USD is testing this broken area and there is a good possibility that this zone could turn into resistance and mark the weekly high.

Traders may now wish to watch the lower time frames for the potential emergence of any bearish setups around this area.

In the event that the GBP/USD turns lower here, the next key support to watch is the prior resistance around 1.2775. But with this level having turned into support a couple of times already, the third test could lead to a potential breakdown. If so, this may then pave the way for a drop to the next key support around 1.2575-1.2615, this area being the point of origin of the last breakout.

However, if the 1.2865-90 area does not turn into resistance then the bearish idea would have to be put on hold. This does would necessarily mean the bullish trend has resumed, as it could be a false break.

But if and when the GBP/USD creates a new high above resistance at 1.3000 and last week’s peak at 1.3045 then all bets would be off for the bears. In this potential scenario, the GBP/USD’s next objectives would be around 1.3240 and then 1.3345.

So, to recap, the GBP/USD is offering two alternative setups on its weekly time frame. Given last week’s breakdown and upcoming UK elections next week, we prefer the bearish setup over the bullish at this stage. 

Source: eSignal and FOREX.com.

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.