GBP/USD: a closer look at the Cable.

GBP/USD: Many traders remain bearish on the GBP/USD but there are a couple of technical signs on the weekly chart suggesting that this pair could be due for a pause or even bounce off these low levels. In this post I take a look at the GBP/USD charts, as well as some of the GBP crosses, and discuss what I believe traders should watch for with the Cable.

The GBP/USD made a classic-style, 4hr chart-based 61.8% fib recovery last week and also closed above the key 1.30 level. There was a batch of upbeat GBP data that helped to lift this pair and seems to undermine the Brexit-related doom and gloom forecasts; GBP CPI, HPI, PPI, Retail Sales and Unemployment Claims were all better than expected but it should also be noted that the weaker US$ also fed into last week’s Cable recovery. 

Before looking at particular levels it is worth noting that the Cable has been trading under a bearish trend line for the last 8 years, since peaking at 2.1161 in Nov 2007 (see monthly chart below). Price plunged during the following 2008 year with the Global Financial Crisis and bottomed near the whole-number region of 1.35. Price action chopped higher after that though and made another peak at 1.7191 in July 2014 but has traded lower since then. In fact, the recent Brexit vote result triggered further lows for the Cable down to the 1.28 whole-number region. This price action has resulted in another bear trend line, of 2 year duration, forming up since that 2014 peak. It is with these two trend lines in mind, as well as the recent low and last week’s price action, that I consider future scenarios for the Cable.

Before considering target levels for either possible bullish or bearish continuation it is worth noting two technical features that have formed up on the GBP/USD weekly chart:

  • Firstly, there is the print of a bullish ‘engulfing’ weekly candle or ‘Railway Track’ pattern that formed off the major support base of 1.30. Both of these patterns support the potential for a bullish-reversal.

Railway Track Bullish Engulfing

  • Secondly, there is the appearance of a ‘Double Bottom’ that also supports the potential for a bullish-reversal, although, for now this is a bit lopsided with only one full test of the 1.28 region on the GBP/USD. 

Double Bottom

Apart from the GBP/USD closing above a key support level at 1.30 some of the GBP cross pairs are also resting above major support levels as we head to the end of the month. Any August monthly close and hold above these major S/R levels for these cross pairs would also lend support to the potential for some broader GBP type of recovery:

GBP/AUD monthly: watch for any August hold above the 1.77 S/R region:

GAmonthly

GBP/CAD monthly: watch for any August hold above the 1.70 S/R region:

GBPCADmonthly

GBP/JPY monthly: watch for any August hold above the 131 S/R region:

GJmonthly

GBP/NZD monthly: watch for any August hold above the 1.77 S/R region:

GNmonthly

Thus, as far as I’m concerned, the 1.28 to 1.30 region remains a critical region for the GBP/USD pair. The recent weekly engulfing / Railway Track candle pattern has me suspecting that a bounce or some form of a relief rally could be in store here given the steady declines over the last two years. I would then look for bullish targets off the weekly chart using previous S/R and Fibonacci levels as a guide. However, any break and hold below 1.28 would suggest to me that a recovery is not in store just yet and I would then look for further bearish targets below that 1.28 base.

These are the levels on the Cable that I will be keeping in focus in coming sessions: 

Bullish targets: above current price:

  • The 1.35 S/R level and GFC low region.
  • The 1.40 S/R level.
  • The 1.45/6 level which is near the weekly chart’s 38.2% fib and the 2-year bear trend line.
  • The 1.50 S/R level which is near the weekly chart’s 50% fib.
  • The 1.55 S/R level which is near the weekly chart’s 61.8% fib and the 8-year bear trend line. 

Bearish targets: below current price:

  • The 1.30 S/R level.
  • The 1.28 level which is a recent ‘Double Bottom’.
  • The 1.20 region is previous S/R from 1984/5.
  • The 1.05 region which is near the monthly chart’s 100% fib.

Price is trading in the 4hr Cloud but below the daily, weekly and monthly Clouds.

The weekly candle closed as a bullish, essentially ‘engulfing’, candle or Railway Track but both support bullish-reversal.

There is only Second Estimate GDP data for the GBP next week but the focus will be on how the US$ reacts on Friday with the Yellen Jackson Hole speech and this should impact this pair as well.

  • I’m watching for any new TC signal and the 1.30 level.

GUmonthly

GUmonthly

GUweekly

GUweekly

GUdaily GU4

Summary:

The GBP/USD closed the week with a bullish-reversal candle pattern above the major 1.30 S/R level. Some of the GBP cross pairs are also holding above key S/R levels for the time being and any August hold above these S/R regions would support the case for a broader GBP recovery.

For the GBP/USD:

  • Any August monthly hold above this 1.28- 1.30 level would support the potential for a bullish relief rally or recovery with targets best identified from the weekly chart as: 1.35, 1.40, 1.45, 1.50 and 1.55.
  • Any August monthly hold below 1.30 and 1.28 would undermine any relief rally and would suggest bearish continuation with targets best identified from the weekly chart as:1.20 and 1.05.