GBPUSD – Strong dollar interest forces correction

Despite its strength over the last month, the pound was no match for the US dollar’s powerful rally on Thursday. It was always going to be a difficult ask for the pair to break through 1.5550 at the first time of asking, with it previously being a strong support level and the 100-day SMA providing additional resistance.

That doesn’t necessarily mean the rally in this pair has come to an abrupt end though, rather it may just be taking a breather. The bearish engulfing pattern on the daily chart would certainly suggest that the next few trading sessions may favour the dollar but beyond that there may still be some upside to come. The recent cross of the 20-day SMA above the 50-day SMA would certainly support this and suggest there has been an upward momentum shift. Every rally has corrections along the way and right now, I see little reason to assume this is any different.

GBPUSD daily

The pair has already run into support around 1.54 which has frequently acted as support and resistance, probably because it’s a round number and this does often have an impact. I’m not sure this is going to hold though and therefore the first big initial test of this dollar rally will come around 1.5350. This has historically been a key level of support and resistance and on this occasion, the 100-period SMA on the four hour chart may provide further support.

Not far below this we have the 38.2% fib level – 23 January lows to 26 February highs – and two previous support levels from the last couple of weeks. This area of congestion could prove to be a strong barrier to any further decline in the pair. Below here we have the 50 fib level from the same move which also happens to fall on 1.5250 which has again been a fairly significant support and resistance level in the past.

GBPUSD daily
If both of these levels are broken, then 1.5180 – 1.5220 provides further congestion for the pair with strong previous support and resistance levels and the 61.8 fib level potentially providing another barrier.

If all of these are broken, it would suggest that this is actually a continuation of the longer term downtrend, but until I see that, I remain bullish.

As it stands, OANDA traders certainly don’t appear to believe the cable rally has run its course.

GBPUSD daily

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.