1.30 is back in focus for GBP/USD after it failed to break above 1.3659, the weekly close of the Brexit vote eights weeks ago. Reports over the weekend that Theresa May’s leadership is under mounting pressure once more is currently weighing on Sterling in early Asia, and tomorrow’s CPI data for the UK could also spark a directional move for Cable, one way or the other.
The weekly chart has been trending lower since the 2014 high, and although gains this year have provided opportunities to trade the long side, the retest of the long-term bearish trendline and bearish range expansion away from it suggests bears are trying to bring the trend back to their side.
We also note that the shallow trajectory of the rising trendline since May undermines the bullishness it somewhat, so a decisive break lower of 1.3027 (or 1.3000 to be safe) could warn of further losses to come.
Zooming into the weekly candles shows that the bearish range expansion was subsequently followed by three compression candles. As it is this cyclical shift between expansion and compression we seek to trade, we are now on the lookout for a break lower as part of range expansion to trigger potential short signals.
The daily timeframe shows us that price action has been messy in recent weeks, although another bearish range expansion candle took Cable to a key zone of support between 1.3027 – 1.3064 and the bullish trendline.
However, the potential fallout from Brexit and fears of instability within the government have helped to further weigh on GBP today, and there’s also potential for a weak inflation print to add pressure to GBP. Yet it should be remembered that these same driving forces also have potential to send GBP sharply higher if conditions reverse.
From a tactical standpoint we prefer to wait on the side-lines until a decisive break of 1.3027 has been seen, before seeking bearish setups on the daily timeframe and below. If, however support is to remain intact and we see a bullish momentum shift, we could consider long positions if the reward to risk potential allowed.
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