GBPUSD Remains At A Crossroads

• faithmight
• August 22nd, 2010

When $GBPUSD rallied all the way to 1.5996, bulls got excited as price moved above 1.5500 and the previous weekly chart high at 1.5521. However, the last 2 trading weeks have seen consolidation and a pullback on both the weekly and daily charts.

The red area represents the Fibonacci area on of the bear price move from 1.7040 to 1.4228. The purple area represents the Fibonacci retracement area of the bull rally from 1.4940 to 1.5996. What was interesting last week was that price continued to be sold in the red area and bought again in the purple area. Though the market was rangebound, price made progressively lower highs and lower lows in the yellow area. The upside remained capped by 1.5700 level which also coincided with the 38.2% Fibonacci level of the bear move on the daily chart. The downside found nice support at the 200SMA on the daily chart. It took an empty economic calendar on Friday to finally allow the technicals of the chart to play out and the $GBPUSD broke out below the 200SMA to the downside. So what now?

Despite the breakdown, price remains in the purple area meaning that until we get break below 1.5450, bulls can realistically come back in and bid cable back towards the highs between 1.5640 and 1.5700. However, continued failure at 1.5700, keeps cable weak to the upside. To the downside, once $GBPUSD breaks below 1.5450, the next level of support is 1.5400. But the next major support level shows up on the weekly chart at 1.5340, the 61.8 Fibonacci level and then 1.5250 former resistance-now-turned-support.

This week, price action is likely to be dominated by developments with the US dollar as the calendar is very light out of the UK until Friday. The major events for the $GBPUSD currency pair will be the release of both the UK and US GDP numbers this Friday. Leading up to the US GDP report, the market will first digest US manufacturing numbers, home sales, and durable goods orders all released throughout this new trading week.

Bulls have lost considerable control of this market. Developments in the sterling index and shifts in the fundamental landscape of both the USD and the GBP (as discussed by myself and @RemixTrades) certainly support the case for bears. Bulls have 1 more line of defense in the purple area at 1.5450. But if the charts are any indication, I expect we see a break below 1.5450 before a break above 1.5700. Pay attention to the calendar and trade what you see.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: GBPUSD

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