Yesterday's drawdown buyback suggests GBPUSD reversal is imminent

04 August 2023 145
Yesterday's drawdown buyback suggests GBPUSD reversal is imminent

On Thursday, the GBPUSD currency pair updated its monthly low, falling a little short of the 1.26 level. However, in the second half of the trading session, the bulls became extremely active, which led to the buyback of almost the entire daily drawdown. The range of 1.26-1.27, which is equal to May highs and late June lows, is now seen as the strong support for GBPUSD. A full-scale reversal of the trend or at least a local upward rebound may start from here.


The day before, the Bank of England raised the key rate for the 14th time in a row. Now it has reached the level of 5.25%. Head of the regulator Andrew Bailey maintained a hawkish rhetoric, stressing that inflation is still too high. The rate of price growth in the UK, despite the slowdown in recent months, remains the highest among all developed countries in the world.


Market participants, seeing other central banks easing their policies, have slightly lowered expectations for the Bank of England's highest rate. Now the peak rate is forecasted at 5.75% rather than 6%. Nevertheless, the British regulator remains the only one among its peers who is expected to continue the cycle of monetary policy tightening during its fall meetings. Such a view among traders may support the pound exchange rate, particularly against the dollar.


Meanwhile, the dynamics of the American currency strongly depends on today's labor market report for July. Preliminary data from ADP showed a strong growth in the number of jobs created, exceeding expectations. If the U.S. Labor Department figures match ADP estimates, the dollar may strengthen. It is worth waiting for the release of the statistics to have more confidence in the future direction of GBPUSD.


According to technical analysis, GBPUSD has high chances of growth. The RSI indicator has approached the oversold zone and is now gradually reversing, giving a buy signal. In case the price rebounds upwards, the first targets for buyers may be 1.278 and 1.282.


Consider the following trading strategy: 


Buy GBPUSD in the range of 1.265-1.27. Take profit 1 – 1.278. Take profit 2 – 1.282. Stop loss – 1.26.


Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion

This content is for informational purposes only and is not intended to be investing advice.

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