Cable moved lower once again last week as a resurgent US dollar continued to drive the pair, with the September futures contract closing at 1.6770 on the daily chart. Friday’s price action was significant with the wide spread down candle breaching potential support in the 1.6800 and closing below this level, suggesting the pair are likely to continue lower in the short term. The next level of possible support is shown by the blue dotted line at 1.6740, where a deep area of price congestion now awaits, but if this is breached then 1.6650 becomes a possible target for a bounce and reversal in the longer term. Moving to the currency strength indicator on the left of the chart, the US dollar remains firmly overbought and moving deeper into this region, whilst the British pound, the yellow line, has some way to go before reaching an oversold position.
All of the above suggests a deeper move for the GBP/USD in the short term, but with the US dollar now reaching an increasingly oversold state, expect to see a reversal in due course which as always will be signaled and confirmed with volume price analysis. There is nothing to suggest that we have reached this stage just yet, and the first signal of any slowdown and reversal will be stopping volume on the daily chart, followed by a period of consolidation, with any move away then confirmed with a low volume test. Provided any reversal and subsequent breakout is associated with rising volumes, then expect to see the pair retest the 1.17150 region in due course.
By Anna Coulling