Failing to break through a medium-term downtrend, GBPUSD has resumed its decline this week. The pair is now again below the 1.315 mark, which corresponds with the 38.2% Fibonacci retracement from the first half of the year's growth wave. While the price is remaining within this channel, the most likely scenario is dropping to the 50% Fibonacci level at 1.294. Both fundamental and technical factors are currently favoring GBPUSD’s selloff.
The pair’s local rebound in the first half of November allowed the RSI indicator to unload accumulated oversold conditions. So, they are no longer preventing further declines. At the same time, the Stochastic Oscillator again points to the bears' advantage. The intersection of the 50- and 200-day moving averages—a death cross pattern—will probably trigger short positions on GBPUSD in the near future. Symbolically, this signal may appear just before the publication of the UK budget for next year.
Finance Minister Rachel Reeves is expected to announce tax hikes of £20–30 billion ($26–39 billion) on November 26. However, according to Reuters sources, the UK government is considering a budget option without these increases. But such an outcome could be even worse, as it would lead to rising public debt. As Japan's situation shows, traders aren't keen to buy the currency of a country whose debt is expanding way faster than its GDP.
Meanwhile, the dollar was unshaken by yesterday’s US labor market statistics for September. The job growth significantly exceeded forecasts, offsetting all the negativity coming from the unemployment rate, which jumped from 4.3% to 4.4%. The next report will be released after the Federal Reserve’s (Fed) meeting on December 10. Thus, policymakers are bound to make a rate decision in the dark. Either way, market participants project no changes to US monetary conditions. Such a scenario will also support the dollar.
Consider the following trading strategy:
Sell GBPUSD below the 1.315 level. Lock in profits at 1.294. Place Stop Loss at 1.325.
This content is for informational purposes only and is not intended to be investing advice.
