GBP Technical Outlook: EUR/GBP to Resistance, GBP/USD Plummets

July 29, 2019

GBP Technical Outlook: EUR/GBP to Resistance, GBP/USD Plummets

GBPUSD, EURGBP, BRITISH POUND TALKING POINTS:

The British Pound has opened the week with a break down to fresh two-year-lows, plummeting below the 1.2400 level that had previously helped to hold support.

It’s a big week for GBP/USD as rate decisions take place in both the UK and the US. Wednesday brings what is expected to be the FOMC’s first rate cut in over a decade; and Super Thursday takes place less than 24 hours later when the BoE provided updated projections and a press conference to go along with their rate decision. Also on the economic calendar is the Non-Farm Payrolls release on Friday, making for a busy latter-portion of the week for the GBP.

GBPUSD PLUMMETS TO FRESH TWO-YEAR-LOWS AHEAD OF FOMC, BOE SUPER THURSDAY

It’s been a rough start to the week for the British Pound as the currency has been slammed-lower to start this week’s trade. While much of the economic world’s attention is focused squarely on Washington DC for the Wednesday FOMC rate decision, threats of No-Deal Brexit have pushed GBP/USD to its lowest spot rate since March of 2017. As discussed over the past two weeks, GBPUSD has been one of the more attractive long-USD scenarios. As the Greenback has continued to gain, bearish prognostications around the Pound have helped GBP/USD to remain aggressively-offered over the past month.

GBP/USD FOUR-HOUR PRICE CHART

SUPER THURSDAY AWAITS

Less than 24 hours after that Federal Reserve rate decision and another item of importance comes up on the economic calendar for the British Pound, and that’s the Super Thursday rate decision. This is when the Bank of England will offer updated projections and a press conference to go along with the rate decision itself and this is often where markets can gain some insight to project potential policy action from the bank. Of note, this will be the first BoE rate decision since the Boris Johnson win, so it’ll be interesting to hear the bank’s take on what might need to happen in the event that No-Deal Brexit continues as a potential outcome. Likely, we will hear the BoE take on a very dovish tone.

On a longer-term basis, this can be a tough area to chase that recent bearish breakout. From the weekly chart, traders can zoom out to see a relative lack of price action in the current area and nothing since April of 2017 when prices rose above 1.2500 and didn’t look back, until a couple of weeks ago, that is.

GBP/USD WEEKLY PRICE CHART

GBPUSD BEARISH POTENTIAL

At this point, traders are left with a couple of options to work with the short-side of this theme. Either chase the already well-developed breakout; or wait for a pullback to some element of resistance that could be used for stop placement. The former of those approaches appears imprudent given how stretched the bearish theme already is; but below, I look into two areas of possible lower-high resistance that could re-open the door for bearish exposure in the pair ahead of Wednesday’s FOMC rate decision.

Current support appears to be showing around the 1.2250 psychological level, and prior support around 1.2400 could be of interest for lower-high resistance. The quandary with that latter level is that it would require a 130+ pip bounce to come into play, and one must ask in that scenario if the bearish backdrop on the pair remains as attractive. A bit closer is another potential zone of interest around 1.2340. This area had a quick support/resistance check earlier today and may soon become usable.

GBPUSD HOURLY PRICE CHART

GBP REVERSAL POTENTIAL

For those that’d like to fade this recent round of GBP-weakness, EUR/GBP could remain attractive. The cross-pair has taken advantage of this recent rush of Sterling weakness to catapult up to a zone of resistance that’s already twice-turned around bullish advances in the pair over the past year. This takes place around the 23.6% Fibonacci retracement of the April-August 2017 bullish run. This scenario would also have the luxury of picking on a potentially-weak Euro with the prospect of looser policy and, perhaps even future QE outlays from the European Central Bank.