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GBP/USD In Downtrend As Long As Below 1.2250

Aayush Jindal

Aayush Jindal

Key Highlights

  • The British Pound started an upside correctionabove 1.2100 against the US Dollar.
  • A declining channel is forming with resistancenear 1.2205 on the 4-hours chart of GBP/USD.
  • The UK Services PMI in July 2019 increased from50.2 to 51.4.
  • The US IBD/TIPP Economic Optimism Index inAugust 2019 might decline from 56.6 to 54.6.

GBPUSD Technical Analysis

This past week, the British Pound declined significantly below the 1.2400 and 1.2250 support levels against the US Dollar. The GBP/USD pair traded as low as 1.2079 and recently started a short term upside correction.

GBPUSD Technical Analysis British Pound US Dollar

Looking at the 4-hours chart, the pair started a strong dropfrom the 1.2517 swing high and after it failed to surpass the 100 simple movingaverage (red, 4-hours).

There was a downside break below a contracting triangle at1.2445 to start the downward move. The pair broke many supports and settledbelow the 1.2250 pivot level. A swing low was formed near 1.2079 and the pairis currently consolidating losses, with corrective moves.

The pair corrected above the 1.2150 level and tested the 23.6%Fib retracement level of the decline from the 1.2517 high to 1.2079 low. However,there are many resistances on the upside near the 1.2200 and 1.2220 levels.

More importantly, there is a declining channel forming withresistance near 1.2205 on the same chart. Above the channel resistance, themain resistance is near the 1.2250 level plus the 38.2% Fib retracement levelof the decline from the 1.2517 high to 1.2079 low.

If there is a successful break above the 1.2250 resistance,the pair could continue to recover towards the 1.2320 and 1.2400 resistancelevels.

Conversely, if there is no upside break above 1.2205 or1.2250, the pair could resume its decline. On the downside, an immediatesupport is near the 1.2120 and 1.2100 levels. Any further losses may perhapspush the pair towards the 1.2040 support area.

Fundamentally, the UK Services PMI report for July 2019 wasreleased by both the Chartered Institute of Purchasing & Supply and the MarkitEconomics. The market was looking for no change in the PMI from the lastreading of 50.2.

The actual result better than the forecast as the UKServices PMI increased from 50.2 to 51.4, signaling a modest increase inservice sector output.

The report added that:

July data signaled a slight improvement in the performance of the UK service sector, with a renewed increase in new work supporting the fastest pace of business activity growth since October 2018. However, the rate of expansion remained subdued overall and much softer than seen on average over the past decade.

Overall, GBP/USD could correct higher in the near term, buta successful break above 1.2250 is needed for more gains.

Economic Releases to Watch Today

  • German Factory Orders for June 2019 (MoM) –Forecast +0.5%, versus -2.2% previous.
  • US IBD/TIPP Economic Optimism Index for August2019 (MoM) - Forecast 54.6, versus 56.6 previous.