GBPUSD has been trending lower on the longer-term time frames and the recent rally offers an opportunity to short on a pullback. A descending trend line can be drawn to connect the latest highs of price action and the Fib tool shows potential resistance levels.

In particular, the 50% Fibonacci retracement level lines up with the descending trend line around 1.4275 and the dynamic inflection points at the moving averages. The 100 SMA just crossed below the longer-term 200 SMA, confirming that the downtrend is likely to carry on. Also, this lines up with an area of interest, right around the previous dip to 1.4200.

Stochastic is already in the overbought area, hinting that buying pressure might fade soon and that sellers might take over. Similarly, RSI is indicating overbought conditions and is starting to turn lower, which means that bearish momentum is building up. A selloff could take GBPUSD back to the previous lows at 1.3850.

Data from the UK has been weaker than expected this week, as the manufacturing and construction PMI readings both fell short. The former fell from 52.9 to 50.8 while the latter dropped from 55.0 to 54.2 instead of improving to the projected 55.5 figure.

On the other hand, data from the US has been stronger than expected, with the ADP non-farm employment change figure hinting at a possible upside surprise in Friday’s NFP. Analysts are expecting to see a 195K increase in hiring for February, which might be enough to keep Fed rate hike expectations in play.

GBPUSD3

For today, the UK services PMI could be a catalyst as this could show a drop from 55.6 to 55.1, reflecting a slower pace of industry growth. Weaker than expected data could allow the selloff to start early, with the 38.2% Fib at 1.4100 holding as resistance.

2 thoughts on “GBPUSD Downtrend Retracement (Mar 3, 2016)”

  1. Ryan Gandalf van Jaarsveld says:

    Hi Kate – as always, thanks a mil for your trading ideas – I also not that we are currently at resistance on H4 which coincides with WM3. If you look at EURGBP we are at the weekly target with an oversold stoch. We are also at resistance on GBPJPY – I trade GBPUSD with GBPJPY due to its high correlation. The NK is at weekly target and daily target. One other thing to notice on GBPUSD and GBPJPY – on both H4 charts 21 and 55 EMA’s are coming to a point with MACD approaching zero. Normally at the start of a bullish trend price will drop below MA’s and then move in the direction of the new trend. If this is the case then I think price could move down to DPP or WPP and then move back up. I have been wondering what has been causing the pound to move up. I understand we bounced off of monthly reversal pivot point at the start of the month which coincided with a strong psyc level though there has been a lot of bull pressure – especially yesterday. When we looked at the COT report on Monday we noticed a drop in price though not a massive increase in the number of sellers in the market. Personally I hope that pound continues moving up after a slight retracement as I would like to trade the trend. I don’t care which direction the trend moves in though we have already spent a number of days creating this bull trend. Having said that I’m not going to buy at resistance and will look at a potential short which may be a scalp or a longer trade depending on whether we start creating lower highs and lower lows. One thing to note – I am very new to trading having started last October so what I say may be incorrect though I am learning and therefore always ensure I participate as I find that speeds up the process. Have a great day of trading!!

  2. Ryan Gandalf van Jaarsveld says:

    Just to clarify what I meant by my COT comment – if banks were behind the short move then maybe they are behind the long move… Also one other reason why I think the pair could continue moving up after finding support (if it moves down) is we bounced off WM2 at the start of the week which makes me think that the target would be WM4 by Friday

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