GBPUSD - Delicately Poised For Its Next Move
GBPUSD has experienced some big moves over previous weeks, which have seen it trade from a September 20th high of 1.3433 to a low of 1.2487 on November 22nd.
Recently, GBP has been negatively impacted by a slowdown in economic growth in the third quarter, a disappointing Autumn budget and a clear-out of weak long positioning. This has all been at the same time the dollar has strengthened in response to a clean sweep of the Presidency and Congress for Donald Trump and the Republicans, US economic data has been strong and Fed policymakers have cast some doubt on whether another rate cut is required before the end of 2024.
However, Is the dynamic changing?
This week GBPUSD has shrugged off early falls to 1.2617 as the dollar strengthened on Monday. Then yesterday, a dip down to 1.2630 on headlines reported in the Financial Times that Bank of England Governor Bailey sees a base case of four 25bps (0.25%) rate cuts in 2025, was again met with fresh buying, this time helped by a weaker than expected US ISM Services PMI print in the afternoon.
So, Is this just a limited recovery or can GBPUSD strengthen further from current levels?
From a fundamental basis GBPUSD's next move feels delicately poised now going into tomorrows Non-farm Payrolls release at 1330 GMT. The outcome of this release could help to confirm or undermine the current expectation of another Fed rate cut at their final meeting of 2024 on December 18th.
Now Let’s Consider What the Pepperstone Charts Show Us.
Recent activity has seen something of a divergence between GBP and USD, in terms of price activity and a fall of just over 7% materialised from the 1.3433 September 20th high.
From a pure technical perspective, it could be argued this saw GBP hit oversold conditions on several measures, while USD may have been classed as overbought. However, these extremes can remain for some time, because trending and sentiment conditions continue to point to extension of recent trends. In other words, traders are happy to maintain current positioning, until there is clear evidence of a directional change.
Since the November 22nd lows in GBPUSD (1.2487), a recovery has materialised and the question now is, does this mark just a limited bounce as a reaction to over-extended downside conditions, or can it see the possibility of a further rally?
Watching Bollinger Mid-Average
As we have suggested within previous posts, the Bollinger mid-average is potentially a focus of resistance if it’s falling within a downtrend, similar to that recently seen within GBPUSD.
So far this week, upside has been held at each daily close by the declining Bollinger mid-average, suggesting this may be viewed as a resistance focus. This currently stands at 1.2682 and closing defence of this level is closely watched today, given that current GBPUSD prices have already moved someway above this point.
However, with the significance of the payrolls release tomorrow, we may have to wait until the dust has settled on that number before establishing the next directional risks for GBPUSD.
Although, 1.2682 giving way on a closing basis, may result in further price increases, dependant on future price action. If this is seen, it may bring possibilities of a more extended retracement of the September/November decline. The 38.2% retracement stands at 1.2850 and higher 50% level at 1.2961.
If an unwinding of current GBPUSD extremes develops further, these levels may prove to be important areas of resistance.
Of course, while closes above mid-average resistance may have in the past seen a more extended recovery in various assets, this is no guarantee of such moves here.
How About Possible Supports?
To the downside, it is Fibonacci retracements that may be of interest as support, if the 1.2682 daily Bollinger mid-average continues to cap GBPUSD prices on a closing basis.
The 38% retracement of latest recovery moves stands at 1.2649 and while this first support break, if seen, will not be a guaranteed trigger for weakness, it may see further price declines, possibly onto 1.2589, the deeper 62% retracement level, even towards 1.2490 November 22nd low.
Clearly, no closing breaks of support or resistance have materialised yet and these are watched, and future price trends will dictate future activity, but confirmed breaks of either current support or resistance, may determine if GBPUSD can recover further, or resume negative themes.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Recently, GBP has been negatively impacted by a slowdown in economic growth in the third quarter, a disappointing Autumn budget and a clear-out of weak long positioning. This has all been at the same time the dollar has strengthened in response to a clean sweep of the Presidency and Congress for Donald Trump and the Republicans, US economic data has been strong and Fed policymakers have cast some doubt on whether another rate cut is required before the end of 2024.
However, Is the dynamic changing?
This week GBPUSD has shrugged off early falls to 1.2617 as the dollar strengthened on Monday. Then yesterday, a dip down to 1.2630 on headlines reported in the Financial Times that Bank of England Governor Bailey sees a base case of four 25bps (0.25%) rate cuts in 2025, was again met with fresh buying, this time helped by a weaker than expected US ISM Services PMI print in the afternoon.
So, Is this just a limited recovery or can GBPUSD strengthen further from current levels?
From a fundamental basis GBPUSD's next move feels delicately poised now going into tomorrows Non-farm Payrolls release at 1330 GMT. The outcome of this release could help to confirm or undermine the current expectation of another Fed rate cut at their final meeting of 2024 on December 18th.
Now Let’s Consider What the Pepperstone Charts Show Us.
Recent activity has seen something of a divergence between GBP and USD, in terms of price activity and a fall of just over 7% materialised from the 1.3433 September 20th high.
From a pure technical perspective, it could be argued this saw GBP hit oversold conditions on several measures, while USD may have been classed as overbought. However, these extremes can remain for some time, because trending and sentiment conditions continue to point to extension of recent trends. In other words, traders are happy to maintain current positioning, until there is clear evidence of a directional change.
Since the November 22nd lows in GBPUSD (1.2487), a recovery has materialised and the question now is, does this mark just a limited bounce as a reaction to over-extended downside conditions, or can it see the possibility of a further rally?
Watching Bollinger Mid-Average
As we have suggested within previous posts, the Bollinger mid-average is potentially a focus of resistance if it’s falling within a downtrend, similar to that recently seen within GBPUSD.
So far this week, upside has been held at each daily close by the declining Bollinger mid-average, suggesting this may be viewed as a resistance focus. This currently stands at 1.2682 and closing defence of this level is closely watched today, given that current GBPUSD prices have already moved someway above this point.
However, with the significance of the payrolls release tomorrow, we may have to wait until the dust has settled on that number before establishing the next directional risks for GBPUSD.
Although, 1.2682 giving way on a closing basis, may result in further price increases, dependant on future price action. If this is seen, it may bring possibilities of a more extended retracement of the September/November decline. The 38.2% retracement stands at 1.2850 and higher 50% level at 1.2961.
If an unwinding of current GBPUSD extremes develops further, these levels may prove to be important areas of resistance.
Of course, while closes above mid-average resistance may have in the past seen a more extended recovery in various assets, this is no guarantee of such moves here.
How About Possible Supports?
To the downside, it is Fibonacci retracements that may be of interest as support, if the 1.2682 daily Bollinger mid-average continues to cap GBPUSD prices on a closing basis.
The 38% retracement of latest recovery moves stands at 1.2649 and while this first support break, if seen, will not be a guaranteed trigger for weakness, it may see further price declines, possibly onto 1.2589, the deeper 62% retracement level, even towards 1.2490 November 22nd low.
Clearly, no closing breaks of support or resistance have materialised yet and these are watched, and future price trends will dictate future activity, but confirmed breaks of either current support or resistance, may determine if GBPUSD can recover further, or resume negative themes.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Global risk Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading in CFDs. You should consider whether you understand how CFD
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.