The pound has started its bullish recovery after hitting the critical bottom at 1.18793 during the Brexit event. From that point, the pair has managed to rally higher for 7 consecutive months and is currently facing a strong resistance level near 1.2800 level. On the event of the US dollar weakness, the GBPUSD pair managed to form a top near the critical resistance level at 1.3050 but the bullish momentum was erased due to the projected rate hike decision by Fed.
In the last FOMC meeting minutes,the Fed hiked their interest rate on the basis of 25 points for the second time this year. According to their proposed rate hike for the year 2017, we are most likely to see another rate hike prior to the closing of the year. Though the US dollar index has rallied higher due to the FED interest rate hike decision, the cable is still imposing a bullish threat as three MPC members voted for an increase in rates.
Let’s do the technical analysis of the GBPUSD pair
Figure: GBPUSD pair heading towards the broken trend line support zone
From the above figure, you can clearly see that the British pound has breached the critical support level at 1.2800 level after the prior to the Fed rate hike decision. The pair has now retraced break and testing the broken support level which has turned into strong resistance. Currently, we have a bearish pin bar on the daily chart which clearly exhibits that the price has rejected the broken support level (currently acting as resistance).Most of the professional traders in the forex trading industry have already gone short with a tight stop loss just above the tail of the bearish pin bar.
The first bearish target for this pair is critical support level at 1.2630 level. This level is going to provide a significant amount of buying pressure as the daily 100 days SMA confluence with the low of 13th June 2016. From that level, we might see another bullish recovery attempt in the cable but a daily closing below the critical resistance level at 1.2630 level will ultimately lead this pair towards the broken trend line support level at 1.2488.However, prior to the testing of the broken trend line, we have 50% Fibonacci retracement level which might create a short-term buying opportunity for the expert traders.
Fundamental analysis
The U.S dollar index has bounced up from the critical support level at 97.09 after the FED hike their interest rate on the basis of 25 points. Due to the recent strength of the green bucks, the GBP/USD pair was supposed to tumble hard but the 3 votes from the British MPC members in favour rate hike in British economy neutralised the dollar bulls threat to a great extent. In the next week, we are likely to see a ranging movement and a retest of the critical resistance level at 1.2800. If the US unemployment claims data turns out to be positive in the next week then we will see a decent drop in the GBP/USD pair. Currently, we have too many resistive candles which argue us going long in the cable.
Summary
The pound has shown a great recovery sign in the past 7 months of the event of the US dollar weakness. Currently, the pair has formed nice bearish pin bar right at the resistance level which suggests bearish movement in the pair in near future. Considering the fundamental and technical factors, we are bearish on the currency pair as long as the critical resistance level at 1.2800 holds.