GBP/USD at risk of deeper plunge, Fib level in focus
GBP/USD TECHNICAL OUTLOOK: DECLINES
- After breaking below 1.3200, GBP/USD accelerated its decline, setting a new yearly low near 1.3050 Before the weekend
- Cable weakness may continue in the near term, especially given the absence of significant support areas about current levels that could serve as an inflection point
- In case of further losses, the 50% Fibonacci retracement of the 2020/2021 rally will become the immediate result focus
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During the first three weeks of February, GBP/USD (pound sterling – US dollar) rebounded strongly, rising about 200 pips from the month open level at 1.3445, but bullish momentum was stopped dead in its tracks after the pair collided with a middle term Trendline resistance near 1.3645. At this momentbear resurfaced from their sleep, rejecting Lower price and triggering a sharp selloff that gave continuity to the downtrend that began in June 2021.
The bearish bias strengthened this week after the GBP/USD finally violated the psychological level of 1.3200, a key reaction region which has acted as support or resistance numerous times over the past couple of years, depending on which direction it was approached from. As expected, the breakdown accelerated selling interest, paving the way for a new yearly low near 1.3050 just before the weekend.
With cable trading below the important moving averages (200-day, 100-day, and 50-day), with flawless lower highs and lows, and with 1.3200 out of the way, the the broader outlook remains tilted to the downside.Besidesthe deterioration in market sentiment resulting from the ongoing war in Ukraine is another negative catalyst to watch.
If it is true that GBP/USD looks oversold according to the 14 day RSI oscillator, I am not convinced that we are at an inflection point yet, especially in the lack of significant support areas nearby this could help support the exchange rate. On that note, the next lower leg could be just around the corner, in which case the 50% Fibonacci retracement of the 2020/2021 rally near 1.2840 becomes the immediate target.
On the other hand, if the bulls unexpectedly regain control of the market and manage to push prices higher, the first technical resistance to consider is around the 1.3200 handle. If we see a decisive move above this ceilingbulls may be emboldened to launch an attack at 1.3365. At this point, the bullish reversal scenario seems unlikelybut should not be completely ruled out, especially if market sentiment were to improve and stimulate appetite for riskier currencies.
GBP/USD TECHNICAL CHART
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—Written by Diego Colman, Contributor