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October 6, 2021

GBP/USD Deep Dive: Price Heading Lower?

Bart Kurek

Check out my previous G/U deep dive from mid-July here to see how we have progressed...

Looking at G/U's long term view, we can see the key horizontal level 1.43 which has been a major support back in 2011 and now major resistance from 2018 onwards. We did see price approach this zone in July/August and it's looking like we could see another move back towards the support in the long-term range-bound market to 1.21.

Following the break of the ascending channel, we're seeing another range-bound market in the medium-term between 1.36 and 1.39. The order block on the chart above is formed from the Daily timeframe.

Price did break the range, breaking past support at 1.36 and finding new lows at around 1.34. Currently, we can see price has now retraced the move and is already possibly finding resistance at the old bullish order block, now new breaker block. I personally believe though that this breaker block will fail, as it's at the same level as retailers support, who are now looking for confirmations of a new resistance. Just above we can see the new H8 bearish order block, where I believe it's likely we could see price reverse there.

As expected, 67% of G/U traders are waiting for price to reverse now, as price is now showing rejection to the resistance level. We're seeing more than double the amount of lots in volume, meaning financial institutions could make a lot more money stopping out the early bears.

Over the next couple of weeks, we've not actually got a lot of major GBP news, however...

We've got many major USD news coming out. This means that the price of G/U over the next couple of weeks will be more dependant on what happens to the USD, rather than GBP. A stronger Dollar will cause the price of G/U to decrease in price and a weak dollar will cause price to increase.

Our Outlook

The rising price of G/U is caused by the easing of the fuel crisis in the UK after the government announced that armed forces will begin delivering petrol across the country. Adding to this, UK Prime Minister Boris Johnson said that we have reliable supply chains for Christmas. We also have a more hawkish turn by the Bank of England last week, indicating that they're heading towards policy tightening next year. An upward revision of the UK Services PMI for September was finalised at 55.4 against the 54.6 flash estimate, further strength for the Pound.

USD strength is rising as the Fed is expected to begin tapering its bond purchases as soon as November. Markets have started pricing the possibility of an interest rate hike in 2022. The USD will play a key role in influencing the pair amid absent news events from the UK. The price of G/U will mostly depend on what's currently going on in America as there's way more events coming out from there.

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