This currency pair has been gently descending over the past week or so: the move lower has not been what could be called especially strong. The major factors slowly coaxing the price lower are continuing fears that the US Federal Reserve will remain on a rath path with a hawkish tilt, which tends to boost the US Dollar against other countries; and a decline in risk sentiment which has seen a retracement in stock markets, which will help to weaken the British Pound.
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When Will Trump Lose Patience?
President Trump is still talking up the prospect of a “good” deal with Iran, possibly as soon as this weekend. However, recent days have shown via prediction markets that there is less expectation of such a deal being concluded over the near term, with Iran still sending out very bellicose rhetoric and the parties exchange some fire over recent days.
After two months of waiting for a deal to be negotiated, President Trump may be about to run out of patience. However, renewed kinetic war would be politically unpopular with the American people and with Congress, with the House of Representatives effectively voting to prevent a renewal of the war without their approval, subject to its passage in the Senate. One way or another, it seems the issue could be coming to a head soon.
An additional timely factor is the price looking heavy having tested the nearby key support level several times over the past week, suggesting a significant bearish breakdown could happen soon.
GBP/USD Technical Analysis
The chart is dominated by a wide and gentle descending price channel. Note, however, that the trend line is symmetrical, which suggests reliability. If that is the case, we have bearish pressure. Further evidence of this bearish pressure is shown by the cluster of resistance levels packed closely together between $1.3450 and $1.3600.
The nearest key support level sits below at $1.3409 which is confluent with the round number at $1.3400. This has been tested and held three times within just the past week. With short-term bearish momentum suggesting another test is imminent, we might finally get a breakdown, which would be confirmed only below the round number at $1.3400.
There are two consolidative factors which might work against an expectation of a directional bearish move:
- The price over the past day or two is “inside” earlier price action, suggesting indecision.
- The price has been consolidating for several days.
Watch Out for a Sudden Disintegration of Deal Prospects
When a major geopolitical deal approaches conclusion, the risk of it decisively falling apart rises. I don’t think that the market is expecting this at all, as the current situation of working towards a deal has been going on for two months now, and people have got used to it. One day a deal is closer, the next it is further away, and the market see-saws. Yet risk factors remain. It may be that the Iranian regime has no intention of concluding a deal on any terms, and they are just spinning the process out to weaken Trump politically and buy time – the war is not popular in the USA and is becoming less so.
Another element on the horizon is Iran’s threat to treat its ceasefire with the USA as null and void if Israel strikes in Beirut, Lebanon. The USA capitulated to this threat and has indicated to Israel not to make such a strike, which gives Hezbollah semi-immunity in Beirut. If Hezbollah begins to attack northern Israeli communities more boldly, this could lead to Israeli fire on Beirut and Iranian fire on Israel, which could start to reignite the entire war.
Could the Price Hold at $1.3400?
I could be wrong to focus so strongly on a bearish breakdown below $1.3400 that would then target the half number level below at $1.3350. There are technical, sentimental, and even fundamental factors working to push the price lower. However, we have seen this hold repeatedly as a support level, even if it has been broken from time to time.
It might be that even though there are bearish factors, there are no additional factors likely to emerge today. So if the price has already held above that level, perhaps that will continue and $1.3400/09 will be today’s pivotal zone.
My Take on GBP/USD
I think the best approach here will be to take the area between $1.3400 and $1.3409 as today’s probably pivotal point, and watch what happens if and when the price reaches it.
There are several bearish factors dominating this currency pair, although its nearly all focused on the USD side. That, coupled with the heavy price action, suggests we could well see a bearish breakdown today.
I will look for a short trade following a solid (no lower wick) breakdown below $1.3400, especially if it happens early in the London session, targeting $1.3350. Make sure there is adequate reward to risk keeping these price levels in mind.
Review, Support & Resistance Levels
My previous GBP/USD signal on 26th May was not triggered.
- Risk 0.75%.
- Trades may only be entered prior to 5pm London time today.
Long Trade Ideas
- Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.3409/00 or $1.3350.
- Put the stop loss 1 pip below the local swing low.
- Adjust the stop loss to break even once the trade is 25 pips in profit.
- Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to run.
Short Trade Ideas
- Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.3440, $1.3461, or $1.3470.
- Put the stop loss 1 pip above the local swing high.
- Adjust the stop loss to break even once the trade is 25 pips in profit.
- Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning either the British Pound or the US Dollar.
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