The Forex Chronicles

GBP/USD Analysis 24 September 2023 – Where is the Bottom?

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GBP/USD Weakness

With the Bank of England keeping interest rates on hold this week after better than expected inflation numbers, it is no surprise that the British pound has been selling off hard.

Higher interest rates attract overseas investment, and so by indicating that interest rates possibly may have peaked, or at least kept on hold for a while, the pound has now become a lot less attractive.

As a result, the GBP/USD has dropped to 1.2237, having traded as high as 1.3143 back in July, and has seen a 3-day drop of nearly 200 pips.

Therefore many traders will now be asking themselves if the GBP/USD is close to a bottom and potentially ripe for taking a long position, or whether it still has further to fall.

Possible Support Level

One thing I will say is that it is very dangerous to try to catch a falling knife. If a market is trending strongly downwards, it has a lot of momentum behind it. So diving in with a long position when you think that it may have fallen too far is often a losing strategy.

The popular oscillating indicators, such as the RSI and stochastics, are all indicating that the GBP/USD pair is oversold on the daily chart, but they were also oversold when the GBP/USD was 200 pips higher last week, so it is foolish to rely on these indicators alone.

You really need to look to the left of the chart and look for possible support levels on the chart because this will indicate areas of support where sellers are likely to exit their positions and buyers are likely to step in.

In the case of the GBP/USD pair, there is a lot of price action between 1.19 and 1.21 so this is a good support zone, and there are double bottom lows from January and March at 1.1841 and 1.1803 that should act as strong support levels, as you can see below:


Trading Idea

Anyone thinking of taking a longer term long position may therefore want to start scaling in between 1.19 and 1.20 (the lower half of the support zone), adding positions down to the previous double bottom lows of 1.1803, with a stop loss somewhere below 1.18.

If the price breaks through the previous lows of 1.18, this would break the thesis of the trade, and you would really want to get out fairly quickly because there is clear air on the chart until the next arwa of support around 1.1150.

I should emphasize that this is just a trading idea and not financial advice of any kind.

Final Thoughts

I myself like to trade potential reversals on a shorter term basis, waiting for times when the price is extremely oversold on the 1-hour, 4-hour and daily timeframes and hitting key support levels. Then I will start to scale into positions.

So I will be waiting for potential set-ups tomorrow and later on in the week.

If the GBP/USD could get down to previous levels of support around 1.18 – 1.20, and is down 1 daily ATR or more on the day, that for me would be a great set-up.

How The 2019 UK Election Results Could Affect The Markets

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December General Election

A general election was called in the UK because it was seemingly the only real way to get any kind of resolution regarding Brexit.

With three years of uncertainty and unresolved talks, I think many people on both sides of the Brexit argument just want us to leave the European Union with a deal and look to the future.

As a result of this and the untrustworthiness of Jeremy Corbyn, Boris Johnson’s Conservatives are strong favourites to win an overall majority in today’s general election.

However as demonstrated in the last general election, the opinion polls are not always correct, and we can’t take anything for granted.

So in this article I want to look at how the result of this election could affect both the domestic stock market and the British pound.

Election Voting

Conservative Majority

If, as expected, Boris Johnson returns to power with a clear majority, then this could have a dramatic effect on the markets.

For a start, the pound is likely to rally strongly against all major currencies, having been beaten down so much in the last three years.

It has recovered somewhat in recent months, but there is still the potential for the GBP/USD, for example, to go up to around 1.35, with some experts predicting that it could even go back up to around the 1.40 level.

A strong pound and a weaker dollar would ordinarily affect the profits, and therefore the share prices, of many of the leading FTSE 100 companies that report their earnings in US dollars.

However in this scenario, the volume of money being reinvested back into UK stocks may very well overcome this exchange rate factor, and result in some big gains in the coming weeks.

In fact it wouldn’t surprise me if the FTSE 100 rallied back to around the 7500 level in the remainder of 2019, which would represent a gain of nearly 4%, before rallying further in 2019 with an orderly exit from the European Union on 31 January 2020.

Hung Parliament

There is no chance of Jeremy Corbyn’s Labour party winning an overall majority, but there is still a chance that Jeremy Corbyn becomes prime minister if the Conservatives fail to get enough seats and Labour forms a coalition government.

It is hard to predict how this unlikely and unexpected outcome could affect the markets, but it is likely to be hugely disruptive and the repercussions could be huge.

The pound would almost certainly be sold off against all the other currencies as this would reintroduce so much uncertainty regarding the Brexit situation. Having not really made his position clear, we don’t really know when or indeed if we will be leaving the EU in the coming months and years.

This result would almost certainly see a stock market sell-off as well because some of the tax and financial measures proposed by Labour are not generally regarded as being as favourable to UK businesses as the Conservative’s proposals.

Therefore the FTSE 100 could very easily plunge below the 7000 level in the coming days and weeks as the reality of a Labour government starts to take hold.

Final Thoughts

Whatever happens, it is going to be a very interesting few days because the markets are likely to be very volatile and there could be some big moves in both the pound pairs and the domestic stock market.

GBP/USD Struggles To Break Through 1.30 Resistance Level

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Long-Term Depreciation

Any of my readers who live in the UK will know just how much the pound has fallen in value against the dollar in the last few years.

In fact it has fallen sharply against many other currencies as well, as you may well have noticed if you have spent your holidays in another country just recently.

Take the Thai baht, for example. One pound used to get you over 50 baht, but as of right now it won’t even buy you 40 baht.

Recent Price Action

The good news is that the pound has started to recover as hopes were raised that we might finally get a Brexit agreement, and not crash out of the European Union without a deal, as previously feared.

The story seems to change every day, but at the time of writing, it now looks like we won’t be leaving the EU on 31 October and there will either be a delayed leave date to scrutinise the Brexit deal more closely, or a general election to resolve any differences between the main parties and get a clear majority.

As a result of this, the pound has rallied off its lows and having traded just under 1.20 at the start of September and as low as 1.22 at the start of this month, it has now pushed on towards the significant 1.30 level.

I say significant because traders seem to play close attention to the reaction of the price when it reaches these key levels on the charts, and will then make their trading decisions accordingly.

Strong Resistance

At the moment the price of the GBP/USD appears to be struggling to break through this 1.30 level, as you can see from the daily price chart below:

GBPUSD Daily Chart - October 2019

On 17 October it posted a high of 1.2990 before falling back down again to close at 1.2873, and then on the following three trading sessions it posted daily highs of 1.2988, 1.3013 and 1.3001 respectively, but failed to actually close above 1.30 on each occasion.

More significantly, after last night’s parliamentary vote where they approved the Brexit deal but voted to ask for an extension from the EU, the GBP has started to turn downwards once again as the chances of an orderly departure in the coming weeks essentially disappear and uncertainty reigns once again.

Future Price Moves

Looking at the price chart above, you can see that the short-term 20-day exponential moving average has already crossed above the 200-day moving average, and if the price can stay around these levels for the next few weeks, it looks inevitable that the 50 and 100-day EMA will also cross above the 200-day EMA.

Therefore from a purely technical perspective, you would think there is real potential for the price to eventually break above the 1.30 level and start to trade within a new trading range of 1.30 – 1.40 rather than 1.20 – 1.30.

It wouldn’t take much of a catalyst to make this happen either because if we do finally come to an agreement in the coming months, or do actually leave on 31 January 2020, as some people are predicting, the pound has the potential to rise quite sharply, and I would predict that it could even move back towards the 1.50 level at some point in the next year or two.

GBP/USD Analysis August 2019 – Key Levels to Watch

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Recent Price Action

The British pound has slumped against many of the major forex pairs as the threat of the UK leaving the European Union without a deal has only increased with every passing day.

However looking at the price charts of many of the pound pairs, the price does seem to have stabilized around the current levels, and may even be showing signs of bottoming out.

So in this article I thought I would take a closer look at the GBP/USD pair in particular because this has really fallen quite substantially in recent months, and have attempted to identify some key levels that may be worth watching in the coming days and weeks.

Key Levels on Daily Chart

Looking at the daily chart first of all, the price is currently trading a long way below it’s 200-day moving average, so there is plenty of scope for the price to rise and move back towards this key level.

The 200-day EMA currently stands at 1.2731 at the time of writing, but if there is to be an upward breakout, we really need to see the price close above 1.2327 because this is the current level of the Supertrend indicator, which has been indicating a bearish trend since 15 May 2019.

GBPUSD Daily Chart August 2019

Until that happens, the price is likely to continue trading in a narrow range between 1.20 and 1.22 until the whole Brexit situation is a lot clearer.

Key Levels on Weekly Chart

Moving on to the weekly chart, the price is also a long way below the Supertrend indicator, which has also been bearish since May, and currently stands at 1.2705.

So I think if we are to see a longer-term bullish trend on the GBP/USD the price is going to have to close above this level because this is currently acting as a strong resistance level, and realistically this is unlikely to happen any time soon.

The only likelihood of the GBP/USD closing above 1.2705 on a weekly basis is if there is some kind of agreement in place between the UK and the EU, but as I say, this is highly unlikely at the present time.

GBPUSD Weekly Chart August 2019

Final Thoughts

I think a lot of traders are keen to look for possible long positions on the GBP/USD pair simply because it has fallen so much this year, but it is pointless taking a position based on a dead cat bounce, or speculating that an agreement will be reached.

It is better to either wait for some news regarding a Brexit agreement, or if you do insist on trading, watching some of the key levels mentioned above to see if they are breached.

However my personal view is that it is not worth getting involved with any medium to long-term trades on this or any other British pound pair until after the October 31 deadline, or until an agreement is reached, whichever happens sooner.

I think the GBP may well bounce back in time even if the UK crashes out without a deal, but at the moment the GBP/USD is simply too risky to trade with any real certainty.

GBP/USD Likely to Continue Trading Sideways After Brexit Delay

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6-Month Brexit Delay

An agreement has recently been reached between the UK and the European Union for Britain’s official exit to be delayed until October 31.

This will come as welcome news to nearly half of the population who want to remain, and those people who still harbour hopes of a second referendum, but from a forex trading point of view, it is not exactly the best of news.

Implications for the GBP/USD Pair

The GBP/USD pair has been trading sideways for quite some time now, and so news of a Brexit stalemate is only going to increase the uncertainty surrounding the British economy, and subsequently the British pound.

Therefore it is highly likely to continue trading in a sideways trading range with no clear momentum or direction.

GBPUSD Daily Chart -18 April 2019

You can see from the daily price chart above that the trading range has actually been getting smaller and smaller in recent weeks as the original Brexit leaving date came and went.

Ordinarily this narrowing range would point to a possible breakout situation, and although it may well drop back to around the 1.28 level, it is hard to see the price moving strongly above 1.31 or strongly below 1.28 at the present time because there is unlikely to be any real news to drive the price in either direction in the immediate future.

Other GBP Pairs

The same can be said for many of the other British pound pairs as well.

Pairs such as the GBP/JPY are also starting to look a little weak, but unless there is a major breakthrough regarding the whole Brexit saga, it is hard to see what will drive the price of these pairs significantly higher or lower going forward.

Trading Opportunities

All of this means that from a trading perspective, it is going to continue to be very difficult to make consistent profits trading the British pound pairs because the average daily trading range is likely to remain relatively small, and there is unlikely to be any clear direction in the near future.

So it is probably a better idea to focus on those pairs that currently have a much larger average trading range and have more potential to trend strongly upwards or downwards in the weeks and months ahead.

One such pair is the AUD/NZD pair, for instance, which has been quite volatile in recent months and has some fairly consistent trends if you trade the daily time frame. This is obviously not affected by Brexit, which is exactly what you want right now.

Other good trading candidates that are not directly affected by Brexit include the USD/JPY and the USD/CAD pairs.

Finally, it is worth mentioning that you could also trade other markets that are trending strongly. The Dow Jones and the S&P 500 are always good markets to trade, as indeed are the crude oil markets, but you could also trade some of the cryptocurrencies or some of the other commodities if you don’t want to trade the British pound pairs. There are always plenty of options.