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GBP/USD re-buffed at $1.30: can cable bulls break through?

It was a strong summer for a number of currencies but the Pound continues to battle it out in GBP/USD at the $1.30 figure.

GBP/USD talking points;

  • GBP/USD has just put in another failed test at the $1.30 psychological level.
  • A short-term bear flag has formed, which appears to align with recent trends via IG client sentiment (IGCS).

Cable re-buffed at $1.30 again

It’s been a busy year so far in 2020 and we still have two and a half months to go. With a pensive Presidential Election on the calendar in the US now just a few weeks away, global markets appear to have warmed to the premise of either candidate as the key factor of Central Bank support will likely remain under either scenario.

For the US Dollar, this has meant a prolonged bout of weakness ever since the spike in the month of March, driven by dynamics around the coronavirus pandemic. And as that weakness has come in, a number of major pairs have seen prices rise with bullish trends driving through this summer.

In GBP/USD, the pair came close to the $1.35 psychological level in the opening days of September. A quick bout of USD strength in September allowed for the pair to pullback all the way to the $1.2712 Fibonacci level; after which buyers returned. But GBP/USD has so far been unable to break and stay above the vaulted $1.30 level.

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GBP/USD daily price chart

Taking a step back to incorporate the longer-term look, and a number of levels stand out as interesting. On the support side of the pair, potential exists around $1.2712 following by a zone of potential support straddling the $1.25 level. For resistance, the area around $1.30 looms large but beyond that another resistance zone exists from $1.3245-$1.3275.

But, it’s the zone around the $1.35 level that looms large on a longer-term basis, as a breakout above this level can open the door for an extended move up to fresh multi-year highs.

GBP/USD weekly price chart

GBP/USD: incorporating IGCS into the matter

As of this writing, approximately 46.76% of retail traders holding GBP positions are net long, highlighting a -1.14 ratio in the IGCS indicator. And while this would normally be construed in a bullish fashion given the traditional contrarian lean from the indicator, the recent increase in long positions (to a less net short reading, overall) highlights the potential for bearish behavior in the pair.

This, combined with the short-term bear flag looked at above both point to the potential for a near-term bearish move that may bring into play a longer-term area of support. Two such areas were looked at above, around $1.2712 and then again around the $1.2500 handle. And a short-term bearish push down to either of these levels may re-open the door for longer-term bullish scenarios in GBP/USD.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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