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After a sharp drop early last week, GBP/USD has fallen into a range while the dollar eases lower.
GBP/USD Consolidates Losses
If there was a clear theme in July for the FX markets, it was that the British Pound was weak. Although Sterling has been able to hold the downside a bit over the past few sessions, there is no reason to believe this theme has not carried over into August.
A weaker dollar over the past few sessions has triggered a range in GBP/USD. This is not all that surprising after the sharp earlier fall in the pair. However, while the technical outlook for EUR/USD shows that that the near-term trend has shifted upwards, GBP/USD does not share the same bullish sentiment.
The pair has been weighed by concerns over a no-deal Brexit as the new Prime Minister has not convinced UK citizens that he can pull off an exit with a deal in place. He has vowed to leave the European Union whether a deal is made or not which has caused the markets to reprice Sterling.
For this reason, I don’t expect that GBP/USD is trying to carve out a bottom here. Unless there are some developments that will boost confidence that a deal will be made, I think the natural course for the pair is lower.
I think it is important to keep in mind that there is significant support in play here. On the chart below, I have marked it off at 1.2150. However, I think we can extend a bit below the level even as it was around this area that GBP/USD bottomed in late 2016 to early 2017.
Because of the underlying support, and as the dollar as trending lower, I think GBP/USD will try to move to upper bound of the current range. I think it’s possible the pair attempts to break higher from the range. But as mentioned, I don’t think a catalyst is in place for the pair to bottom here.
Resistance has come into play from the 100 moving average on an hourly chart. If the pair pushes through it, I expect it will attempt to trigger stops above Friday’s high of 1.2188.
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