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Pound Stabilizes, Could Trade Sideways For A While

By InstaForex GroupForexOct 27, 2021 06:35AM ET
www.investing.com/analysis/pound-stabilizes-could-trade-sideways-for-a-while-200606483
Pound Stabilizes, Could Trade Sideways For A While
By InstaForex Group   |  Oct 27, 2021 06:35AM ET
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The pound was on a roller coaster yesterday, though it closed the trading day almost flat. The sterling opened higher on Tuesday in light of the news from the US Congress.

There is still a long way until American lawmakers reach a compromise over the public budget. Being in the gridlock, they had to cancel the federal debt ceiling temporarily. They took this emergency measure to avert a new government shutdown and continue funding public agencies and employees.

Notably, a day earlier, President Joe Biden stated that the Republicans and Democrats came to a common denominator, and the deal would pass in the nearest days.

Yesterday, it became evident that Congressional Democrats were still struggling to reach any agreement. It turns out that among Democrats, there are enough opponents of a tax hike.

So, many issues in the budget and Joe Biden’s stimulus plan have to be settled. However, after the opening of the New York trade, the market situation changed abruptly. The pound sterling missed its footing and lost all previous gains because of the US macroeconomic data.

The house price index dropped to 18.5% from 19.2%, defying expectations for an increase to 19.2%. Amid the global trend of soaring inflation that threatens the global economy, even a minor decline in such metrics is welcome news, especially when it comes to house prices.

Besides, new home sales in the US surged 14.0%, beyond a moderate 1.0% growth expectations. Without accounting for the house price inflation, such a robust increase in home sales is the primary catalyst for the US dollar’s advance.

New home sales data.
New home sales data.

Nevertheless, the greenback is likely to lose ground today. The reason could be durable goods orders. The volume of durable goods orders is expected to contract by 1.1%.

This economic data is a forward-looking indicator of further consumer activity that serves as a driving force of the overall economic growth. Hence, the likelihood of a decline in consumer activity will play its role, undermining the US dollar’s confidence.

US durable goods orders data.
US durable goods orders data.

GBP/USD Outlook

A range-bound market followed a corrective move from support at 1.3400. Since then, GBP/USD has been stuck in the range of 1.3730 to 1.3880 for over a week.

Fibonacci levels confirm the flat market as the price has remained between 38.2 and 50.0, which coincide with the borders of the trading range.

The RSI technical indicator is moving below the level of 50 in the 4-hour chart. It means that traders are poised to open short positions.

Trading Ideas

GBP/USD could trade sideways for a while. A standoff between bulls and bears means that the momentum is building up.

It will eventually trigger a breakout. Under such market conditions, a breakout strategy should work well depending on the direction of a breakout on either side.

If the currency pair consolidates above 1.3835, it would be an appropriate strategy to plan long positions. Alternatively, if the price consolidates below 1.3705, short positions will be relevant.

Complex indicator analysis signals selling opportunities for intraday trading. Traders could open short positions near the lower border of the trading range.

Technical indicators signal a corrective move in the medium term and suggest buying opportunities.

GBP/USD 4-hour chart technical analysis.
GBP/USD 4-hour chart technical analysis.

InstaForex Group

Pound Stabilizes, Could Trade Sideways For A While
 

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Pound Stabilizes, Could Trade Sideways For A While

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