GBPUSD: Top of the Bounce or Further Upside Potential?It’s already been quite a volatile week for GBPUSD price action, starting with a dip from opening levels at 1.2205 to register new 14-month lows at 1.2100 on Monday as the recent negative sentiment towards UK assets continued at the start of the week.
This 1.2100 print was reversed quickly, and weak short positions were squeezed back to the topside at 1.2306 on Wednesday as inflation data (CPI) in the UK printed below expectations, easing traders’ general gloom towards the UK, but more importantly calming UK bond markets and giving some hope to householders that the Bank of England could be swayed to cut interest rates sooner than initially anticipated.
This up move in GBPUSD was also helped on its way by US CPI also rising less than forecast, although the GBPUSD rally post this US inflation release was short lived, with prices falling back to 1.2200 again this morning after a weaker than expected UK GDP growth release.
Right now, it seems GBPUSD may be in a potential holding pattern at the lower end of its range while traders await the release of UK Retail Sales data tomorrow at 0700 GMT, and then more importantly, Donald Trump officially taking office as President of the United States on Monday.
His actions on trade tariffs next week could set the backdrop for whether GBPUSD prints new lows or squeezes further towards the topside.
What Are the GBPUSD Technicals Telling US?
The recent sterling deterioration has been widely reported in the media and there is little doubt it has seen an extended decline, over a relatively short period of time.
In GBPUSD, since the September 2024 high at 1.3433, into this week’s low at 1.2100, the cross has fallen just under 10%, with only a brief interruption and limited rally seen as a reaction to weakness, developing in late November 2024 and early December 2024.
Some might argue, and it may prove to be valid, that this has left prices at over-extended downside conditions, with a deeper recovery due. However, while much clearly depends on future price trends, the latest price declines may have seen some key potential support levels give way.
For example, the latest declines have seen closing breaks below 1.2249, which is equal to the 38.2% Fibonacci retracement of September 2022 to September 2024 strength. While previous breaks of similar supports have triggered continued downside moves, there is no guarantee it will do so again, but focus may well now shift to deeper possible support levels.
The October 2023 low stands at 1.2037 and could reflect an area where buyers may be found once more, although this support giving way might trigger a more extended phase of retracement towards 1.1888, which is the mid-point level (50%) on the chart.
What are Resistance Levels?
As we have said earlier, it is possible after the near 10% fall in price, a reactive move could materialise to unwind the current downside extremes. So what are potential resistance points to monitor?
Measuring Fibonacci retracements of the December/January weakness, the 38.2% level stands at 1.2374. This might prove to be something of a pivot point for traders deciding if resumption of downside momentum, or a further extension of upside recovery moves is to be seen.
Closes above this level might signal a period of further price strength, with the 50% point at 1.2456 and 61.8% level, 1.2539, then becoming the possible next resistance levels.
That said, while 1.2374 remains intact and caps any attempts at the upside, price activity should be watched closely for signs of potential downside resumption and further weakness.
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