Technical analysis of GBPUSD

Technical analysis of GBPUSD

The four-hour chart of the pound against the dollar (GBPUSD; ‘cable’) features some of the pound’s worst weekly losses in years. The pound lost over four cents since Thursday afternoon GMT, reaching a low of more than two years this morning. High resistance on H4 GBPUSD might be the key psychological zone of 1.26. Low support is less clear, but 1.20 and 1.21 are both important psychological areas in the absence of pure technical levels.

Technical indicators on GBPUSD H4

Moving averages in their usual combination suggest a strong sell signal. Price is significantly below all of the 20 (from Bands), 50, 100 and 200-period simple moving averages. In turn, these lines are all below each other with no significant interaction over the last few weeks.

Bollinger Bands (20, 0, 2) have widened greatly this week, indicating higher volatility. At the time of writing, Bands do not indicate oversold conditions because the current candle is entirely within the lower deviation. The slow stochastic (15, 5, 5) here does demonstrate a clear oversold reading. Although both lines have moved up slightly from nearly zero yesterday and this morning, they remain clearly within the lower trigger zone. MACD meanwhile seems to support continuation downward, with the histogram having extended significantly below the signal line.

Price action and Fibonacci

Price action on GBPUSD H4 suggests ongoing downward movement after a period of consolidation. Three black crows yesterday came before more losses this morning. Despite the previous period’s doji with a long tail, there is no indication so far of a bounce. It’s possible that the current candle might provide completion of a morning star pattern. However, confirmation should come from completion of the period; a downward engulfing pattern might be more likely.

Fibonacci lines here are based on the most recent downward movement starting from Thursday. The most important area in the near future is probably 23.6% because this coincides with slowing momentum overnight and the important psychological zone of 1.22.

Key data points

The Fed’s meeting tomorrow night GMT is crucial for cable in addition to every other pair with the dollar, especially euro-dollar and dollar-yen. A cut of 0.25% to the funds rate appears to be fully priced in. The unlikely prospects of a cut of half a percent or no cut would most likely change the technical picture completely for most dollar pairs. Traders should also follow the meeting of the Bank of England’s Monetary Policy Committee on Thursday. Last but certainly not least, Friday’s NFP day.

Technical analysis GBPUSD: summary

On the whole, technical indicators on H4 GBPUSD suggest continuing downward movement. More losses on the scale seen so far this week are unlikely, but unexpectedly positive news from the Fed could drive another selloff in cable. Equally, traders should monitor saturation indicators in an attempt to identify retracements from strongly oversold conditions.

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