The GBP/USD continues to lose ground in early trading today and the depths of the forex pair are bringing into view long term perspectives.
The GBP/USD is traversing near the 1.17500 level as of this writing. Yesterday’s high of nearly 1.18310 began to wave early and support levels have continued to prove vulnerable. On the 17th and 18th of August the GBP/USD was still above the 1.20000 level and some speculators may have thought support lines could be held at those ratios. However, selling of the GBP/USD continues to grow and its pace downwards yesterday certainly quickened.
Long term charts and historical perspective will be debated as the value of the GBP/USD currency pair is challenged. During coronavirus and the days of the Brexit chaos the GBP/USD did test low depths, but both those events were overcome. The forex pair was able to climb and reached what many financial houses – particularly in the U.K – believe was a more ‘reasonable’ equilibrium between 1.30000 and 1.40000 with outliers being seen on occasion. The price of the GBP/USD is now lower than it was during the worst of Brexit fears, when the 1.19000 ratio came into sight.
Coronavirus, Brexit and Ronal Reagan Topics of Discussion with GBP/USD
During coronavirus the GBP/USD sank below the 1.15000 level in March of 2020, but by September 2020 the currency pair was again above 1.30000. Traders and financial houses this time around may not believe a quick turnaround should be expected. Putting aside Brexit and coronavirus, the last time the GBP/USD traded this low was when Ronald Reagan was President of the U.S and Margaret Thatcher was leading the U.K. The USD was strong at that time due to massive growth created by Reagan’s economic policy. The GBP/USD touched the 1.05000 level in January of 1985.
Decision on U.K Prime Minister will be known on September the 5th.Can the BoE keep pace with the Fed to safeguard value of the GBP/USD?
Traders Looking for Reversals Higher Short Term in the GBP/USD need to be Careful
The GBP/USD does appear to be oversold from a historical perspective. The GBP/USD has a long track record of trading at much higher values. However, short term traders who believe the forex pair is suddenly going to turn around and march higher need to keep their ambitions in check. Economic events are turbulent. U.S Federal Reserve policy remains unclear, but will likely remain hawkish over the next few months. And the decision regarding who will be the next Prime Minister of the U.K will be decided in a little less than two weeks.
Coming events this week via the central bankers meeting in Jackson Hole, Wyoming will factor into Forex via speeches made. The long term lows being tested by the GBP/USD are certainly attractive as speculative wagers, but traders should remain conservative. Psychological marks like the 1.17000 level may become a factor. If the 1.17300 mark is suddenly tested and the 1.172500 level were to prove weak, this could set off additional alarm bells. Traders need to use total risk management and keep their targets realistic. Looking for upside movement via natural reversals higher may seem tempting, but in the short term should be done with extreme caution.
GBP/USD Short Term Outlook:
Current Resistance: 1.17500
Current Support: 1.17400
High Target: 1.18240
Low Target: 1.16900