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Has The Pound Sterling Bottomed Out?

By InstaForex GroupForexMay 13, 2022 06:16AM ET
Has The Pound Sterling Bottomed Out?
By InstaForex Group   |  May 13, 2022 06:16AM ET
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Following a nosedive on Thursday, the pound sterling was expected to make at least a technical bounce. However, insteadб the British currency was pinned at lows. The reason for the GBP/USD growth could have been a weekly update on US unemployment claims as they were supposed to log a minor increase. The actual data differed significantly from the forecast.

The number of first-time jobless claims rose just by 1K, much weaker than the expected 3K. Besides, the number of continuing applications for unemployment benefits contracted by 44K last week whereas economists had projected a 3K increase. In other words, the US labor market is steadily improving. Importantly, in light of such data, the pound sterling did not weaken against the US dollar but remained flat.

We can draw the only conclusion that the sterling is extremely oversold, so traders need weighty reasons to push it even lower. The market is looking for an excuse to make a technical correction. Unfortunately, traders did not find such an excuse yesterday. Today the macroeconomic calendar is empty which means a neutral information background. Thus, the British pound will be able to regain its footing. Indeed, the currency market does not tolerate imbalance. 

US continuing claims.
US continuing claims.

GBP/USD slowed down its bearish move at around 1.2165. As a result, traders cut on short positions that pushed the price up to 1.2250, the level passed previously. The currency pair has been fluctuating since then, accumulating momentum for further speculations.

The H4 RSI technical instrument touched the oversold zone which is confirmed by a retracement on the chart. Moving averages on the H4 and D1 Alligators are directed downwards despite the range-bound market. MAs are not intersected.

Outlook and Trading Tips

Sideways trading means a fight between bullish and bearish forces that will eventually lead to a breakout of either border of the trading range. In this case, the reasonable strategy is trading following the direction of a breakout.

We could open long positions on GBP/USD after the price settles above 1.2250. Short positions would be relevant after the price settles below 1.2165. Complex indicator analysis provides a mixed signal for the short-term and intraday trading on the back of the flat market. For the medium term, indicators suggest selling amid the overall bearish trend.

GBP/USD price chart.
GBP/USD price chart.


Has The Pound Sterling Bottomed Out?

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Has The Pound Sterling Bottomed Out?

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