GBPUSD Trend Line Pullback (Feb 01, 2016)

GBPUSD recently made a strong downside break from the short-term rising trend line support visible on its 1-hour time frame. This suggests that the pair might be in for a downtrend, although a pullback to the broken support area might be in the cards.

Using the Fib tool on the breakout move shows that the broken trend line coincides with the 61.8% Fibonacci retracement level, which might hold as resistance. This is also near the moving averages, which might serve as dynamic inflection points.

The 100 SMA is still above the 200 SMA, indicating that there’s a chance that the uptrend might resume. Stochastic and RSI are both on the move up but are nearing the overbought levels, which means that sellers might take control of price action soon.

Event risks for this trade include the BOE Super Thursday events, which comprise the Inflation Report and central bank statement, along with the MPC meeting minutes. Recall that the UK central bank sounded dovish in their previous policy statement, citing that they’re pushing back their time line for rate hikes. This downbeat sentiment was echoed by BOE Governor Carney in his recent testimonies, emphasizing the risks from China and falling commodity prices.

As for the US, the upcoming release of the NFP report could also have an impact on dollar price action, but Fed officials appear to be more concerned about inflation trends these days. Risk sentiment could also push the dollar around, with a return in risk aversion likely to weigh on the safe-haven currency.

By Kate Curtis from Trader’s Way