A1 Trading Company

July 13, 2021

GBP/USD Deep Dive: Pound Starting A New Wave?

Bart Kurek

Looking back to 2009, we can see that price usually tends to move choppy in a range for a couple of years, then break out and use the same previous support level as a new resistance level. Between 2009 and 2015, 1.425 was a clear support level in the enormous range. However, once we saw the break, looking back at the past couple of years from 2017, this same level is now our significant resistance level, and we can see price taps and reverses from this level.

We have recently seen price break out of the long-term ascending channel, which it had been travelling in since the Covid outbreak back in March 2020. We could potentially be seeing the start of a new trend forming, possibly a downtrend now? Price has not broken the high in March yet, and therefore if we continue to see price head lower, forming lower highs and lower lows, it will be evident that price is forming a new descending channel or trend.

1.375 is a medium-term level which price has been respecting as support recently as previously it has been seen as resistance. If we see price break through this level and head lower, it will be clear that price will actually continue heading lower, and form the new trend mentioned earlier.

Looking at retail sentiment, G/U traders are actually quite mixed on this market, as there isn't a clear one-sided bias yet. Sentiment is mixed and traders are essentially waiting on the next confirmation of whether price is heading or lower in the next couple of months.

Traders are focused on the inflation data coming out later and is expected to grow 0.5% m/m in June. Inflation is projected to increase 4.9% y/y. Core Inflation Rate is expected to grow by 4%.

The key question traders are waiting for, is whether the inflation rate will get above the 5% mark. The Fed has recently managed to calm markets, and most traders believe that inflation remains under control and current inflation rate is temporary. If the inflation rate exceeds 5%, the USD may get more support as higher inflation may force Fed to raise rates sooner than expected.

More on USD news this week which will affect GBPUSD here.

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