GBP/USD Daily Forecast – Pound Drops to Fresh 5-Month Lows

After falling for four consecutive sessions, GBP/USD is trading at levels not seen since early January. The pair has been mostly consolidating sideways in early European trading while the dollar is catching a bid.
Jignesh Davda
GBP/USD

Double Top Pattern in GBP/USD Has Completed

In prior forecasts, I’ve discussed the double top pattern in GBP/USD. The neckline of the pattern falls at 1.2655 and was broken on Friday shortly after the US retail sales report triggered a broadly stronger dollar.

The measured move target for the pair falls at 1.2545 and the pair is currently trading just below it. Sometimes we see a bounce after a target has been reached, but that has not been the case this time around as the pair sliced right through the target.

I believe the next direction for GBP/USD will be entirely based on the economic calendar as there are several major risk events on the docket in the second half of the week.

For most market participants, the focus will be on the Fed meeting that is scheduled to take place tomorrow. It is expected to be a much more volatile week for GBP/USD traders as there are several more risk events.

Governor Carney is scheduled to speak later today. Considering the sell off in EUR/USD today following Draghi’s speech, this is probably not a speech to dismiss.

On Wednesday, UK CPI data stands to move GBP/USD and on Thursday the BOE will present its latest policy stance.

Technical Analysis

It is quite likely a number of traders got stopped out on today’s decline. It took the May low which is considered to be a significant price point. I suspect any traders that were long, which can be quite a few considering how weak the dollar recently was, might have had their stop below it.

GBPUSD 4-Hour Chart

For that reason, I see 1.2558 as the first upside hurdle as it reflects the May low. A breach above it exposes 1.2580 resistance.

In terms of support, I consider 1.2480 to be significant and the next possible downside target. This level reflects the lowest the exchange rate traded last year, on a daily close basis.

GBPUSD Hourly Chart

Bottom Line

  • GBP/USD is showing some exhaustion and has met targets from the double top pattern. However, the long side continues to look risky
  • There are several risk events pertaining to the pair in the second half of the week. I expect a jump in volatility

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