GBP/USD faces tough odds in the week ahead

British Pound Technical Forecast: Neutral

  • GBP/USD fell for a second week, setting a new multi-year low
  • Prices May Rebound, But Chances of a Trend Reversal Look Slim
  • The 21-day EMA may offer strong resistance if the bulls advance

GBP/USD Technical Forecast

The pound fell against the US dollar for a second week, posting a loss that took prices to the lowest levels since March 2020. A political storm around Prime Minister Boris Johnson was a major contributor to the weakness. Mr Johnson’s resignation on Thursday lifted some political uncertainty. This allowed prices to pare the weakness over the weekend.

Over the weekly period, the relative strength index (RSI) crossed the 30 mark, reflecting an “oversold” position. A move to territory below 30 RSI does not mean the weakness cannot continue. In fact, an RSI crossover usually sees a follow-up move. The Average True Range (ATR) – a measure of volatility – has reached levels not seen since the start of 2021. This bodes ill for the British pound in the short term, as traders could sell hard until volatility cools.

GBP/USD weekly chart

Chart created with TradingView

A zoom in on the 8-hour chart shows GBP/USD paring losses over the weekend after setting a new low in July at 1.1874. The MACD oscillator crossed above its signal line during this bounce, a bullish sign. However, prices face a tough road to recoup recent losses after breaking out of a Bear Pennant pattern in late June.

The falling 21-day exponential moving average (EMA) turned out to be the level to break through at the end of June. This EMA could provide strong resistance if the bulls press attack in the coming week. If broken, GBP/USD has a chance to rally and reverse its broader downtrend. A return to the June and July lows is more likely given recent price action as well as the bearish stance seen on the weekly timeframe. Overall, GBP/USD looks poised for further weakness.

GBP/USD 8 hour chart

gbp to usd chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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