The market is experiencing a notably strong US Dollar, which seems to be outperforming nearly every other currency around, including the pound. Overall, there’s a noticeable decline in risk sentiment. Over the past day, most riskier assets have taken a hit, and the GBP/USD pair is no exception. US Treasury Yields are climbing to levels not seen since 2007, with the 10-Year Yield hitting 5.24%.
This paints a somewhat bearish landscape, yet we are nearing significant lows that might prompt a crucial technical reversal or a considerable bearish breakdown.
GBP/USD Fundamental Analysis
For the short term, the outlook for the US Dollar remains optimistic. The Federal Reserve recently raised rates and indicated that more tightening could be on the horizon, boosting the Dollar Index to nearly 101.00, close to its peak since July. This adds pressure as markets weigh a roughly 62% chance of two additional 0.25% rate hikes by year-end. Elevated US yields and ongoing inflation concerns are supporting the greenback, with global investment still favoring the US, largely due to President Trump’s encouragement.
The pound does benefit somewhat from UK interest rates; the Bank of England kept its policy rate at 3.75% in September, with the inflation rate for August standing at 3.1%, exceeding its 2% target. This keeps the potential for more rate hikes on the table, which could bolster the pound. However, weak growth and increasing energy expenses pose challenges for households and businesses. The overall outlook is tentatively supportive for the pound, yet it clearly lags behind the strength of the dollar.
GBP/USD Technical Analysis
The price has recently dropped from the peak of its 18-month range and is now approaching its lower boundary, which is quite a noteworthy movement, considering the range isn’t particularly wide. As it nears this low, there’s a potential for significant activity.
Looking closely at an hourly chart, despite seeing a higher low and two higher highs recently, the immediate price action has been quite bearish. It suggests the price may challenge the recent low around 1.3200 after establishing new resistance levels at 1.3243, 1.3250 (a notable quarter number), and 1.3277. I think those last two levels could act as turning points leading to further declines after any brief upward movements.
On the downside, support at 1.3202 is quite crucial, although there’s also some higher support at 1.3224. A dip below 1.3200 would likely set the stage for testing the 9-month low at 1.3140.
My Take on the GBP/USD
While the outlook appears bearish, caution is advisable when nearing long-term lows in Forex. The key levels to watch are 1.3250 and 1.3200. I believe that a failure to maintain above 1.3250 might present a solid shorting opportunity. I’d also consider shorting around 1.3277 or 1.3275. If the price settles below 1.3200, then the 1.3140 test becomes quite important.
Currently, I don’t see any potential for a long trade today. However, it’s worth monitoring for a possible rebound below 1.3200 later in the week, especially if significant US data releases turn out to be surprising and weaken the US Dollar. It’s uncertain whether President Trump will succeed in pushing long-term yields back down.
Review, Support & Resistance Levels
My last GBP/USD signal from September 23 didn’t trigger any trades.
New trades should ideally be executed before 5 PM London time today.
Long Trade Ideas
Consider going long after a bullish reversal on the H1 timeframe at the next touch of $1.3224, 1.3202, or 1.3140.
Set the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade gains 25 pips.
Close half of the position for profit when the price moves up 25 pips, and let the rest continue.
Short Trade Idea
Consider going short after a bearish reversal on the H1 timeframe on the next touch of $1.3223, 1.3243, or 1.3274.
Set the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even when the trade is up 25 pips.
Close half of the position for profit when the price reaches an increase of 25 pips, and let the remainder ride.
The classic “price action reversal” can be identified when an hourly candle closes, like a pin bar, a doji, or even just an engulfing candle with a higher close. You can take advantage of these levels by closely watching how price behaves at them.
There’s nothing significant scheduled today for either the British Pound or the US Dollar.
