The GBP/USD currency pair
has been on a free fall pretty much since mid-April 2018. And while the
pattern may appear to be forming some consolidation just above the
1.3100 key level. There is little to suggest that the current downward
momentum won’t push the Cable further downwards.
In fact, any rebound is more likely to
be a ‘dead cat bounce’ than a major change in direction of the exchange
rate between GBP and USD. And this is for obvious reasons including but
not limited to the rising political temperatures in the UK parliament in
both the House of Lords and the House of Commons.
UK Prime Minister Theresa May lost a
major vote on Brexit in the House of Lords and the same fate is widely
expected in the House of Commons. This type of tension coupled with a
British economy that has been flat at best in recent months are likely
to continue suppressing the GBP for the next few weeks and potentially
months. As such, traders are expecting the downward momentum to continue
to the foreseeable future. But not without periodic rebounds and
pullbacks, and these present reasonable trading opportunities.
So, what could traders target as the
potential profit zones for both bearish and bullish opportunities? The
daily chart below paints a great picture that could answer that
The GBP/USD currency pair recently broke
downwards through the 1.3200 mark. It has since traded within the
1.3100 and 1.3200 trading zone, which makes 1.3100 the next target for
bearish traders as represented by (S1) in the chart.
For those targeting a potential rebound,
1.3240 at (R1) looks like a prudent target given the current exchange
rate of about 1.3172. This could net traders profits of close to 70 pips
by the end of the week should the Cable bounce back from the current
But incase a trader is not interested in
playing around with the short-term turbulence of the GBP/USD currency
pair, then there are potential long-term targets to look at too.
As demonstrated on the chart above,
there are a couple of long-term opportunities on the bullish side of the
pair while a more reasonable target also exists for the bears.
Represented by (R2) and (R3) at 1.3300
and about 1.3400 levels are two bullish opportunities that the pair
could rally to by mid-July. On the bearish side of things, the bears can
target 1.3000 at (S2) for the same time frame.
The long-term targets can also be
confirmed using the weekly chart, as the support and resistance zones
can be found just around the key fib levels of the Fibonacci Retracements.
As demonstrated on the chart above, the
1.3100 target aligns closely with the 50% fib level, while the 1.3000
support level has the backing of the 61.8% fib level. These are
realistic target levels for the bears of the GBP/USD currency pair.
The bullish target at 1.3400 also aligns
with the 38.20% Fib level, again indicating that it could be a
realistic resistance level for the next couple of weeks.
For now, it increasingly looks like
unless U.K. PM Theresa May somehow gets an unlikely win on the Brexit
vote in the House of Commons the GBP/USD currency pair is likely to
oscillate within the 1.3250 and 1.3100 levels to the end of the month.
However, things could change
significantly for better or for worse once both the U.S. and the U.K.
release economic data for June early next month thereby triggering a
major rebound or a further slump down south.
Traders will also be watching
developments in the US and China trade wars. President Trump’s
imposition of $200 billion of tariffs on Chinese products was met with a
similar response from the Chinese government which announced more
tariffs on U.S. products worth an amount north of $50 billion.
This ‘tit for tat’ game between two of
the world’s largest economies is affecting the global neighborhoods
negatively including the U.K. and the Eurozone.
Furthermore, the Bank of England voted
to hold rates at 0.50% while the Federal Reserve hiked the funds rate to
2.0% from 1.75%. The contrasting views and the outlook of the two
economies pretty much dictate what could happen going forward albeit
with notable turbulence.
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