Markets have become livelier and more volatile over the past couple of weeks. Although this was driven mostly by stock markets, we are seeing changing perceptions of the US Dollar begin to create more meaningful movement in the Forex market too. The GBP/USD currency pair is in focus for several good reasons as it rose in early trading today. Let’s drill down and take a closer look.
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GBP/USD Fundamental Analysis
The British pound retains a bullish near-term fundamental bias, supported by the Bank of England’s November rate increase to 4% and the prospect of further tightening as inflation pressures persist. Stronger-than-expected economic activity reinforces that support, with third-quarter GDP growth expected at 0.7%, helping sustain sterling’s yield appeal.
The US dollar has a mixed near-term fundamental outlook: stronger-than-expected employment data and roughly an 85% market-implied probability of a December Federal Reserve rate hike support its yield appeal. However, easing US–Iran tensions and falling oil prices are reducing both safe-haven demand and concerns about energy-driven inflation, putting the currency under pressure. This means fundamentals and sentiment are equally strong for both the British Pound and the US Dollar, no neither currency gets an edge here.
This analysis suggests that the British Pound has the fundamental edge today.
GBP/USD Technical Analysis
Zooming out and looking at a long-term price chart showing many months of price action will bring most analysts to the conclusion that this pair is range bound. The price has been cycling between lows near 1.3100 and highs near 1.3700 and this has been going on for well over a year. The consolidation has become tighter.
While we might have a long-term technical "tie" between these currencies, shorter time frames are telling a different story. The price has been rising steadily and quite surely ever since this week's trading opened. Along the way, obvious and key support levels at 1.3400 and 1.3426 were printed. This suggests conviction, and that is not surprising, as the British Pound stands out as the most bullish major currency right now thanks to the recent Bank of England meeting.
The price is currently approaching the key resistance level of 1.3463. However, it is the levels beyond that, especially the one most confluent with the big round number at 1.3500, which are likely to be strongest and most interesting.
GBP/USD H1 Price Chart – Rising All Week
My Take on the GBP/USD
I am very interested to enter a long trade in this currency pair today. Although breakouts tend to "work" better than pullbacks as a trade entry method in the GBP/USD, the price has already been rising steadily during the earlier Asian session and is near resistance without any prior consolidation, so I would not want to take a breakout trade.
I think the best approach will be to wait for a pull back to either 1.3426 or 1.3400 even though there is a good chance that will not happen today.
Review, Support & Resistance Levels
My previous GBP/USD free signal on 26th October was not triggered.
New trades should only be entered prior to 5pm London time today.
Long Trade Idea
Go long following a bullish price action reversal on the H1 timeframe immediately upon the next touch of 1.3426 or 1.3400.
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 ride.
Short Trade Idea
Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of 1.3463, 1.3486, or 1.3497.
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 impact scheduled today concerning the British Pound. Regarding the US Dollar, there will be a release of CPI (inflation) data at 1:30pm London time.
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