GBP/USD (daily chart as of August 14, 2014) broke down below the important 100-day EMA on July 31. As mentioned in our previous analysis, the 100-day EMA has been serving as long-term support since 2013 (arrows from 1 to 5 shown on chart as support).
The pair is now facing a possible trend change, either to a downtrend or to a range. The projected Fibonacci retracement levels of the pair’s prior uptrend (from the high of July 31, 2014 back to the low of July 7, 2013) would be around 1.6630 (23.6%), 1.6285 (38.2%), and then 1.6000 (50%).
Current price is resting at the 1.6690 level after dipping to a low of 1.6655, which is very close to the 23.6% retracement level of 1.6630. Note that 1.6690 is the last significant low point of the prior uptrend. Price may find support at this level. The 200-day EMA is now around 1.6710, also close to 1.6690.
Yesterday’s weak data from UK Q2 earnings growth showed the first contraction in four years. UK ten-year bond yields dropped to the lowest in a year as signs emerged that the Bank of England may keep rates at a record low for longer. Upcoming risk events include the GDP report from the UK scheduled to release tomorrow, and the CPI due on August 19.
Support levels below:
1st support: 1.6690/30 (May 29 low / 23.6% retracement level)
2nd support: 1.6450 (March 23 low)
3rd support: 1.6285/50 (38.2% retracement level / February 5 low)
Resistance levels above:
1st resistance: 1.6890 (August 5 high) or 100-day EMA
2nd resistance: 1.7000 (July 28 high / psychological level)
3rd resistance: 1.7190 (July 15 high)
- Diane Ming
Diane Ming has been trading FX for over five years. She is an affiliate member of the Market Technicians Association (MTA).
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