The GBP/USD currency pair is showing signs of a bullish trend, with a key signal showing potential upward movement if the price holds above the $1.3201 level. This analysis comes amid consolidating price action over the past week, highlighting the strength of support at this critical juncture.
Key Takeaways
- A bullish price action reversal on the H1 timeframe above $1.3201 presents a long trade opportunity.
- Support at $1.3201 is considered strong, coinciding with the psychological $1.3200 level.
- The British Pound benefits from high UK inflation, limiting the Bank of England’s ability to cut interest rates.
- Rising expectations of a Federal Reserve rate cut are weakening the US Dollar.
Trading Strategy and Analysis
Forex traders are advised to look for long positions on GBP/USD if a bullish price action reversal occurs on the H1 timeframe immediately after the pair touches $1.3201, $1.3153, or $1.3141. Recommended risk is 0.75%, with trades to be entered before 5 pm Tokyo time on Wednesday. Stop losses should be placed 1 pip below the local swing low, with a move to break even once the trade is 25 pips in profit. Taking 50% of the profit at 25 pips is suggested, allowing the remainder to ride.
Conversely, short trade ideas are suggested upon a bearish price action reversal at $1.3268, $1.3289, or $1.3326, with similar risk management strategies. A classic price action reversal can be identified by hourly candles such as pin bars, doji, outside, or engulfing candles with a higher close.
Market Sentiment and Influences
The analysis highlights the confluence of support at $1.3201, forming a bullish double bottom, contrasting with a bearish double top at $1.3268. Despite a long-term bullish trend in the US Dollar, this is becoming questionable due to an 87% expectation of a 0.25% Fed rate cut next week, which is also reflected in the US Dollar Index (DXY) price action.
The British Pound is demonstrating strength, largely attributed to high UK inflation (3.8%), which restricts the Bank of England’s options for interest rate cuts. No significant economic data releases are scheduled for either the GBP or USD today that are expected to heavily influence the market.
Previous Performance
The previous GBP/USD signal on November 25th was not triggered. However, an earlier forecast on the same date, which predicted a bullish bias above $1.3128 and a potential rise to $1.3164, proved to be accurate and profitable.