GBP/USD long-term techs: has cable finally found support?

It’s been a brutal four-month stretch in the pound as Brexit tension remains high. But GBP/USD ran into a trendline that has since quelled the decline.

GBP/USD talking points

The fundamental backdrop around the pound has been bearish for quite some time, hastening in April and pushing prices down to fresh two-year lows in early August. Since that early August test inside of $1.21, prices have begun to tilt higher, helped by support coming in from a long-term trendline.

Despite the numerous calls for a parity print in GBP/USD, much of which appears to be driven by fears around Brexit, cable ran into a long-term trendline in the opening days of August that has, so far, helped to hold the lows. The ‘rate cut rally’ in the US dollar following the Federal Reserve's (Fed’s) first rate cut in a decade helped to push GBP/USD perilously close to (16 pips away from) the vaulted $1.20 level, a price that’s only been temporarily traded at in the pair over the last 34 years. That one instance was during the flash crash of 2016 when Brexit fears were dominating the headlines, and the low that was set during that event can be connected with the all-time low set in 1985 to produce an upward sloping trendline.

That trendline came into play on 1 August and has since helped to hold support in GBP/USD.

GBP/USD monthly price chart

To be sure, the fundamental backdrop remains in question and there’s little that appears certain at this point. Perhaps one of the few certainties that we can draw upon is that given the strong correlation between the British and European economies, it's unlikely that one or the other wants to inflict pain as a punitive measure as the drawback effects will most likely create negative impact to both.

But – given the elongated downtrend that’s already shown in the pair, combined with a US dollar that’s remained persistently strong while moving towards two-year highs, and there could be continued scope for higher prices in GBP/USD in the near term.

US dollar weekly price chart

GBP/USD long-term strategy

For GBP/USD to continue the two-week rally, there’s likely going to need to be some participation from the US dollar which will likely spell for a more dovish Fed at the September Federal Open Market Committee (FOMC) rate decision. This, combined with a bit of softening in the fear around Brexit, could help the pair to further recover, opening the door for retests of the $1.25 level or, perhaps even, as deep as a move towards $1.27.

GBP/USD daily price chart

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