The GBPUSD has returned to declines after euphoric increases due to the Conservative win in the UK parliamentary elections. Currently, after the turbulence related to uncertainty about the form and timing of leaving the EU (the deadline for leaving the EU was definitely set for 31 January 2020), economic data have come to the fore, and it is the data that have an increasing impact on the GBP exchange rate.
And the data, even those from Monday, do not look good, industrial production shows a decrease of 1.1% m/m (table above).
When we take a closer look at the daily chart of the popular “cable”, we notice that it resembles the shape of the H&S formation, the so-called “Heads and Shoulders”. Although it is not as regular and shaped as the models we see in the Price Action textbooks, the neck line is very well formed here. The intersection of the horizontal level S/R 1.2970 with the neck line marks the point of confluence of supports.
From Monday to Friday – Live trading at 13:00 (London time) chat, analyse and trade with me: https://www.xm.com/live-player/basic
If the 1.2970 level is crossed, we can expect further dips, at least down to 1.2800. If the mentioned H&S is implemented according to the theory, the dips can even be as high as 600p, which is the formation height.
Perhaps the impulse to break the neck line will be tomorrow’s data from the UK, which we will know at 10:30 GMT+1. If they turn out to be weaker than expected, it may convince BoE to lower interest rates at the next MPC (Monetary Policy Committee) meeting, and thus weaken the British pound.
Of course, the upward scenario should also be taken into account, which can be implemented after overcoming the steep downward trend line between the December peak and the right arm of the H&S formation.
In our Facebook group, which you can join anytime: https://www.facebook.com/groups/328412937935363/ you will find 5 simple strategies on which my trading is based. There, every day we post fresh analyses of currency pairs and commodities