Forex

GBPUSD bearish outlook worsens; signals discouraging

GBPUSD switched to a recovery mode on Monday following last week’s brutal sell-off, which worsened the broad outlook and squeezed the price to a new two-year low of 1.2100.

The previous low of 1.2154 is currently limiting upside pressures as the momentum indicators provide little hope for a meaningful rally. Explaining that, the slight upturn in the RSI is not convincing yet since the indicator remains well dipped in the bearish area, while the negative slope in the Stochastics suggests that the bears have more fuel in the tank. Moreover, the MACD seems to have started a new bearish round below its red signal and zero lines.

If sellers dominate below the 1.2100 round-level, the next pivot point could develop somewhere between the 1.2074 low from May 2020 and the 1.2000 psychological number, where the 78.6% Fibonacci retracement of the 2020 – 2021 uptrend is also placed. The 1.1970 restrictive zone may immediately attract attention before the decline sharpens towards the 1.1765 handle.

In the positive scenario, where the pair snaps the nearby block at 1.2154, the recovery could continue towards the 61.8% Fibonacci of 1.2312. An extension higher could initially pause near the 20-day simple moving average (SMA) at 1.2483 and then face a more challenging battle within the 1.2545 – 1.2600 zone, formed by two tentative descending trendlines and the 50-day SMA. If the latter proves easy to claim and the price crawls above May’s high of 1.2665, the next target could be the bottom-line of the broken bearish channel seen around 1.2770.

In short, although GBPUSD is pushing for some recovery, buying interest is currently looking weak. Hence, the market is expected to face some extra losses before the next bullish phase takes place.

About the author

Christina Parthenidou

Christina joined the XM investment research department in May 2017. She holds a master degree in Economics and Business from the Erasmus University Rotterdam with a specialization in International economics. Previously, she earned a bachelor of science in Economics from the University of Cyprus. Apart from foreign exchange markets, her research interests include the impact of International trade on labour markets and product development.

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