Chapter 14 09/27 GBPUSD: Beware of Selling at the Downtrend as the Market Moves Further Out of the Mean
Abstract: The GBPUSD continued to fall on Wednesday, as the USD rose due to the higher yield of U.S. Treasury Securities, and the prospect of further interest rate hikes was unsupported by the Bank of England's (BOE) decision to keep interest rates unchanged last week. At the same time, the market price is further divorced from the average price, so beware of selling at the downtrend.
Fundamentals
The GBPUSD fell to a six-month low of 1.2131 on Wednesday, the worst month since former UK Prime Minister Truss left office.
A year ago, former UK Prime Minister Truss' spending plan pushed the GBP to an all-time low. Today, the market is once again disgusted with the UK's currency (GBP).
For months, investors have flocked to the UK to seize the opportunity of soaring interest rates in the UK. However, the BOE unexpectedly decided to stay put last Thursday, which made the bears focus on the fundamentals of the UK again. Even though the impact of last year's crisis gradually faded, the fundamentals of the UK remained tepid.
After the BOE decided to keep the bank interest rate unchanged at 5.25%, many people now bet that the GBPUSD will enter a continuous downtrend. It seems difficult for the GBPUSD to reverse the bearish market trend in the past month because the only support for the expectation of raising interest rates is rapidly fading.
A year ago, the market questioned financial credibility. This time it is to question the credibility of monetary policy.
As the BOE is expected to raise interest rates, the GBP has been included in investors' selling lists. On the contrary, after the Federal Reserve suspended its tightening policy, it still reserved flexibility for the interest rate hike policy, and the USD gained strong support. The USD also rose due to the higher yield of the U.S. Treasury Securities, pushing the GBPUSD to continue to fall.
Technical Analysis
Since hitting a 15-month high of 1.3142 in mid-July, the GBPUSD has fallen almost every week, and the selling strength has increased significantly in the last week near September.
The GBPUSD fell more than 4.0% this month, the worst month so far this year. At present, the trading price is at a six-month low of 1.2131, which increases the speculation that the bearish cycle may end soon due to the accelerated decline.
Nevertheless, the Relative Strength Index and the Stochastic Oscillator are not showing any improvement, even though they have long been oversold. This means that bears will probably remain active for some time before exiting.
Before falling below the integer threshold of 1.2000, the key support level of 1.2100 is just around the corner. If it falls below 1.2100, the market may seek protection around 1.2000. If the price goes further down, it may pause below 1.2000 and accelerate to move closer to the next target of 1.1900-1.1800 range.
Otherwise, the immediate upward adjustment may shift the focus to the 1.2300-1.2380 trend line range, which is also the 61.8% Fibonacci retracement of the previous upward trend.
Overall, the short-term tendency for the GBPUSD remains skewed to the downside, although the market is deviating further from the mean (red pressure line) due to the emergence of key support levels, and the ongoing plunge could trigger an upward adjustment. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 1.2250
Target price: 1.1989
Stop loss: 1.2360
Deadline: 2023-10-11 23:55:00
Support: 1.2180, 1.2086, 1.2010
Resistance: 1.2193, 1.2279, 1.2371
