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Go Long at the Lows as Limited Downward Space Is Validated
Summary:
The GBPUSD regained momentum after falling from its recent multi-month high of 1.2153 due to the improvement of risk sentiment and testing of the 1.2000 level, and gained a firm foothold in 1.1950, with a daily gain of 0.50%, now reached 1.2013.
CLOSED
1.19900
Opening Price
1.23000
TP
1.17000
SL
1.22342 -0.00602 -0.49%
1547
Point
Profit
1.17000
SL
1.21447
Closing Price
1.19900
Opening Price
1.23000
TP
Fundamentals
After retreating from its recent multi-month high (1.2153), the GBPUSD continued to gain support on Wednesday and maintained a "buy at the lows" trend in the early European session. The GBPUSD is currently trading near intra-day highs with bulls now hoping to continue to gain a firm foothold above the psychological barrier of 1.2000.
The USD edged lower amid a weakening tone around US Treasury Securities yields, which proved to be a key factor in providing some support for the GBPUSD.
The GBPUSD's move is no longer a "one-way bet", as it is unclear whether the prospect of the Fed ending its rate hike cycle or improved risk sentiment reducing safe-haven demand will be enough to weaken the USD.
Meanwhile, investors' position adjustments have played a key role in GBPUSD's recent rally, but further gains are likely to be limited. The GBPUSD could rise further briefly to the 1.2200-1.2300 level before turning around, which should be the best level before the end of the year.
We believe that markets will face a tough risk environment at the end of 2022 and early 2023 as central banks raise interest rates and the economy gradually heads into recession. The performance of the GBP remains fragile.
In addition, this year is or will be a dramatic year for foreign exchange markets, with the Fed-led global interest rate hike hitting market sentiment. The one-month implied volatility of major currency pairs is much higher than the 10-year average for the same period, suggesting that options traders are preparing for another month of big swings in foreign exchange markets. Meanwhile, the volatility of the stock market and interest rates has increased, and many people think that the USD is at a turning point. The decrease in liquidity and various risk factors indicate that there is little room for a decline in foreign exchange volatility.
U.S. Federal Reserve Chairman Powell will make a speech on Wednesday, and several key U.S. economic data will be released one after another this week, including inflation and employment data favored by the Federal Reserve, which, together with the yield on 10-year U.S. Treasury Securities, will provide investors with more trading opportunities of GBPUSD.
Technical Analysis
The GBPUSD continued to fall on Tuesday, failing to break the 200-day SMA of 1.2145 again. Since September 2021, this level has been a keycap on the upward trend. Nevertheless, the positive structure with rising lows in the short term is still valid under the support of continuing bullish cross for the 20-day SMA and 50-day SMA.
Importantly, despite the recent price retreat, momentum indicators remain in favor of the bulls. Among them, the RSI maintains positive above its neutral mark of 50 and the MACD still remains diverging above the 0-axis.
The 50-week SMA in the 4H timeframe is holding steady at the threshold of 1.1950. If this level is firm enough, the GBPUSD could challenge the 200-day SMA again as momentum indicators continue to develop and could reach the 50% Fibonacci retracement of the 1.4248 - 1.0324 downtrend at 1.2285. This zone has been a key resistance in the second half of 2022. Therefore, a sustained break above this area could trigger renewed bullish pressure. More follow-through gains could reverse the GBPUSD to neutral.
On the downside, the 1.1823 - 1.1700 range is the last defense for bulls, namely the 20-day SMA and 38.2% Fibonacci. A break below this range will trigger more selling pressure.
Overall, the GBPUSD continues to trade within a bullish range, with only an effective break of the 200-day SMA to attract new bulls into the market. It is recommended to go long at the lows.
Trading Recommendations
Trading direction: Long
Entry price: 1.2000
Target price: 1.2300
Stop loss: 1.1700
Deadline: 2022-12-14 23:55:00
Support: 1.1940, 1.1873, 1.1709
Resistance: 1.2067, 1.2119, 1.2153
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You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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