Originally published by AxiTrader
1.3050, or there about, is the 38.2% retracement of the pre-Brexit high and the post-October flash-crash low. It was mine, and clearly plenty of other trader's target for a retracement in GBP/USD.
But since bouncing to this level sterling has been really struggling for topside traction.
So the big question I'm asking myself is what's next? Is sterling due for a decent pullback or is it just pausing before the next leg higher?
Looking at the long term GBP/USD chart - the monthly one - I see that my MACD suggests prices should be moving higher but that my 13 month ema is sitting just atop the recent highs at 1.3060. That reinforces the importance of this 1.3050/60 level.
So we have a long term base building after a precipitous fall but some overhead resistance and a clear level that accords both with the Fibonacci and moving average that needs to break to open further topside.
Clearly then 1.3050/60 is an important level.
In a fundamental sense the pound seems to struggling after the collapse in the post-Brexit positive data flow. With a print this morning of -0.4 the Citibank economic surprise index for the UK has unwound back to levels that existed pre-Brexit.
That could equally reflect a recalibration of economist and market expectations as it could intrinsically poor data. But it's important because it also drives bond markets, bond rates, and in a forex sense the all-important bond spreads.
Naturally what happens on the US side of the ledger is important. And it's worth noting its data flow has collapsed as well. But the net of the two has been that UK-US 2 and 10-year bond spreads are working against GBP/USD right now.
So we have a confluence of technical resistance and other indicators suggesting that the recent 1.3050 high might be it for the moment.
But that doesn't mean sterling is about to collapse. The US dollar has it's own issues right now.
Rather when I dive into the shorter daily time frame on the GBP/USD chart I see a currency under pressure and biased back toward 1.2830ish. But I also see a currency with clear support at that level.
If that was to break then GBP/USD would be inclined toward this shorter term 38.2% retracement of the up move from late February which comes in at 1.2680.
Here's the chart.
Have a great day's trading.