GBP/USD Price Outlook As Dollar Strength Pressures Sterling

(MENAFN- Daily Forex) This currency pair has spent recent months rewarding traders who were prepared to buy dips, but the market is beginning to look much less comfortable with that familiar pattern as the US Dollar stays strong.

The recent move lower is starting to look more convincing, with Sterling now not one of the stronger major currencies. This shift in the market's perception of the British Pound may be the catalyst, combined with technical changes, that make this currency pair worth paying more attention to over the coming days.

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The good news for traders is that the GBP/USD looks like it may behave very respectful of technical factors, which might make it interesting to trade now GBP/USD Is Bearish as Dollar Strength Returns

Both currencies can be seen as relatively strong and weak, with the US Dollar reasserting its earlier strength and starting to move more decisively higher. However, this will not be truly decisive until the US Dollar Index get established above the big round number at 100, which looks likely to be a pivotal point.

There is major US data due this week – average earnings and NFP – which could also give the relative value of the US Dollar a big push. In these cases,“accidents often happen along the line of least resistance”, so a trend can get a nice tailwind from a surprise.

Finally, technical factors are looking very strong and decisive, with some obvious lines in the sand which traders can use to gauge the picture/USD Technical Analysis: Key Resistance at 1.3520

The price action has been decisively bearish for over one week now, ever since the price failed to break out to a new six-month high price above 1.3650 and began moving lower with a series of orderly breakdowns which flipped support to become new resistance levels. There has not even been one single true higher low in this entire movement until a few hours ago, and the early and light status of that makes it highly questionable.

Another factor which adds to the convincing nature of this bearish leg is the way this price action can almost completely be captured by a linear regression analysis study, which can be seen within the price chart below. When this feature can be drawn to make a price channel symmetric, it tends to be more reliable.

EURUSD Chart by TradingView

The standout support or resistance level which looks as if it could be pivotal today is the resistance overhead at 1.3520, which might extend as high as 1.3530 and will be confluent with the upper trend line of the descending price channel for most of the rest of today.

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The blind spot here may be an over-reliance on technical analysis. As a technical analyst, today's chart of this currency pair jumps out as having meaningful indications. This probably makes me overconfident that a bearish scenario will play out over the near term.

Unless there is a major and unscheduled surprise from the Bank of England or even the European Central Bank, it is difficult to see what I might be missing, except maybe the tension between the USA and Iran escalating after the countries traded military blows yesterday. However, the situation seems to have de-escalated in recent hours, with no new US attacks last night. It is conceivable a Fed member might say something that is interpreted as dovish which could trigger a minor US Dollar selloff to the Bearish GBP/USD Outlook

I see the dream scenario here for traders, especially day traders, is to hope for a retracement to the 1.3520 level which tests that area which rejects it forcefully – this could be a very good short trade entry signal.

Taking 1.3520 as the likely pivotal point, an alternative scenario will likely play out if the price can get established above that level today, which will open the door to a rise to 1.3554 – this 1.3550 has also recently acted as a very pivotal area, so this resistance level might play a significant role in what happens after that.

GBP/USD is worth watching because it is making a technical steady bearish move which is supported by fundamental, sentimental, and most of all technical indicators. If it continues moving lower, it has a long way to fall while remaining within its dominant range, suggesting there could be a good opportunity to get involved on the short side, although that moment might well not be arriving today. Alternatively, the pair may surprise, if the first potential lower high we saw form within recent hours produces an impulsive bullish move which breaks the resistance level at 1.3520.

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