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Jignesh Davda
GBP/USD

GBP/USD Close to Breaking to a 28-Month Low

If it wasn’t for a brief spike lower on January 3rd, GBP/USD would already be trading at multi-year lows. Perhaps this is distorting the measurement, but make no mistake, The British pound is notably weak.

The early year spike down holds a low of 1.2373 on my chart. That is about 10 pip lower from where the pair traded earlier today. A break below it would have the exchange rate trading at levels not seen since March 2017.

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UK Inflation Rises as Expected

The Office for National Statistics reported a 2% rise in the Consumer Price Index in the year to June. This was as expected and unchanged from the prior reading. Core CPI rose 1.8% during the same time, also as expected.

In addition to CPI, PPI input fell short in June declining 1.4%. Output also missed the forecast with a decline of 0.1%. The House Price Index rose 1.2% on an annual basis, which was expected.

Technical Analysis

GBPUSD 4-Hour Chart

There is certainly a lot of momentum behind the decline in GBP/USD.

I think it will take a rally above 1.2450 for this downside momentum to subside a bit. While below the level, there is potential for a continuation. The mentioned level had held the exchange rate higher last week, triggering a recovery to test resistance at 1.2570.

The next level of support I have is at 1.2373 which marks this years low. There may be some stops below the level from traders that positioned long last week, hoping for a bigger swing. In this context, I do think we can at least spike below the level if we test it.

Bottom Line

  • GBP/USD has been declining with momentum. It will take a rally above 1.2450 to cool down the momentum
  • Lows set at the start of the year fall at 1.2373. if GBP/USD breaks below it, it will be trading at levels not seen since March 2017.
  • It’s worth keeping an eye on the US dollar index (DXY) here. It is coming into levels that have acted as major resistance in the past.
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