GBP/USD Technical Analysis: Breaking Strong Support

  


The Pound was unable to withstand the strength of the US dollar, especially as the Bank of England abandoned the idea of ​​a near rate hike and two members voted to cut rates rather than expectations of financial markets to raise them. This quickly supported the GBP/USD losses pushing it to the 1.2768 support, where it was almost stable at the close of last week’s trading. The pair’s failure to return to the vicinity of 1.3000 psychological resistance again contributed to the technical decline below the strong support level.

The British pound has entered a short-term downtrend since the beginning of November, due to the strength of the US dollar and the paralysis of the pound due to continued political uncertainty in Britain. The pound’s performance reflects the Conservatives’ 10-point lead over Labor in the polls, and the assumption is that it is enough to present a majority government that would end Brexit quickly in the New Year under an agreement signed in October between the British government and the European Union. At the same time, 10 points are not enough to secure a majority in parliament, and bets indicate that expectations for the probability of a conservative majority are only 40%.

This suggests that expectations of an impending election to break the impasse on Brexit are not guaranteed, and this will only provide further uncertainty and pressure on the GBP. We expect the pound to break away from its recent ranges if opinion polls indicate that the Conservatives are in constant progress or their control has shrunk.

Apart from politics, this week will focus on key economic figures, notably the third quarter GDP growth rate on Monday, labor market figures on Tuesday, inflation figures on Wednesday, and retail sales on Friday. Q3 GDP is expected to reach 0.4%, up from -0.2%. Average wage data is expected to reach 3.8%, unchanged from the previous month. The three-month change in employment is expected at 90,000. Core inflation is expected to reach 1.6% year-on-year for October, down slightly from 1.7% in September.

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According to the technical analysis of the pair: On the GBP/USD daily chart, it seems there is a clear formation of a double top. Further drop is expected in the short term. Selling on the pair will increase as it moves towards or below the 1.2700 support. The pair was down 1.24% the previous week. The charting studies point to an immediate moderate looming weakness followed by a stable trend and the possibility of eventual long-term bullishness. On the 4 hour chart, we also see a bearish ascending pattern called the double top. It is a “M” pattern and is a reliable indicator of impending weakness. The strength of the uptrend will not return without the 1.3000 psychological resistance. The developments of the Brexit and the upcoming elections will determine the fate of the Pound.

There is a holiday in the US markets. The UK data will focus on GDP growth and manufacturing production index.

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