GBP/USD Holds Confluent Support at the 200DMA

British Pound, GBP/USD Talking Points:

• The British Pound was drubbed after the Bank of England’s rate decision in mid-March but has since stabilized with support appearing at a confluent spot on the chart for GBP/USD.
• Outside of two-day sell-offs in early Feb and mid-March, it was a bright quarter for GBP as GBP/USD held in a range, even as the U.S. Dollar put in strength. If the Dollar drops in Q2, GBP/USD could be one of the more attractive major pairs to work with that theme given the current technical backdrop.
• The Trader’s Course has been released: If you’d like to learn more about trading, there are three modules available on the topics of fundamental analysis, technical analysis, and price action. The Trader’s Course.

It was a disappointing month of March for GBP/USD bulls. Price put in a jump in the early part of the month to test a long-term trendline, taken from the 2007 and 2021 swing highs, which had also come into play last July. But the pair quickly turned-around and snapped back into prior support structure. It was more than a technical move, however, as there were also a couple of bearish fundamental factors to consider. At the source of the sell-off was a very dovish Bank of England rate decision just a day after the FOMC meeting; and even though U.K. Core CPI had previously printed at 5.1%, the BoE was considering cutting rates. And then a week later, the new Core CPI data point showed a stark drop, down to 4.6% from the prior 5.1% read and this, again, gave bears motivation to push prices-lower.

The net of March price action is a gravestone doji, with the high showing right at that trendline projection.

GBP/USD Monthly Price Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

GBP/USD Q1 Complete

The big takeaway from early-Q1 trade was relative strength in the Pound. Despite the U.S. Dollar’s incline, GBP/USD held a range for much of the period, and as we move into quarter-end, both GBP/USD and the U.S. Dollar via DXY are trading above their 200-day moving averages.

At this point, price is holding a confluent spot of support around the 1.2590 level, which is also the 50% mark of last year’s major move. That level currently plots right around the 200-dma, which has so far held the lows after the March pullback; and there’s additional reference for support below that, such as the 1.2500 psychological level that hasn’t come into play since December.

Perhaps the biggest takeaway from Q1 is the fact that bears were unable to get much run until we had the breakout in early-March, and even then, they could only push price back down to prior support.

GBP/USD Weekly Price Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

From the daily chart below, we can get a better view of that support defense in late-Q3 trade. The forceful sell-off from the Bank of England rate decision stalled at the 1.2590 level and in the following week, a higher-low appeared. This further illustrates support defense but given the lack of bulls’ ability to take out resistance on either support test, another probe of the lows can’t be ruled out. The bigger question is what happens after, whether a failed breakdown attempt below 1.2590 confluent support brings in bulls for another show of defense. Below 1.2590, the 1.2500 psychological level sticks out as this was confluent with the 200-dma in December, and the last test there led to a strong bounce up to resistance.

If bulls can hold the lows and continue the range, there’s resistance potential at the 61.8% Fibonacci retracement of 1.2720, after which the 1.2800-1.2828 zone comes back into the picture.

GBP/USD Daily Price Chart

Chart prepared by James Stanley, GBP/USD on Tradingview

— written by James Stanley, Senior Strategist