GBP/USD Technical Analysis
About the GBP/USD (British Pound/US Dollar)
The GBP/USD is the third most frequently traded currency pair in forex, nicknamed the Cable. It’s one of the oldest currency pairs, representing two economies - the United Kingdom and the United States. The value of the GBP/USD depends greatly upon the relative economic strength of each nation.
The currency pair indicates how many US dollars (the quote currency) are needed to purchase one Great Britain Pound (the base currency). For example, if the pair is trading at 1.30, it means it takes 1.30 U.S. dollars to buy 1 Pound.
The British pound/US dollar pair is one of the most liquid currency trades in the forex space. The tight bid-ask spreads, volume, and volatility, all ensure that the popularity of day trading of GBP/USD is only set to rise.
Breaking Down ‘GBP/USD’
The GBP/USD is one of the most liquid, cash rick currency pairs. GBP/USD is the third most traded major currency pair, consisting of about 14% total daily trading volume.
As two of the most advanced markets in the world, GBP/USD extends an abundance of resources for obtaining price information and data. It is deemed that nearly 35% of the volume traded in the FX markets goes through London. GBP/USD rates can shift exceptionally fast. While this is excellent for active, decisive traders, it also implies that you can lose money pronto. To counter this, you need to be controlled, employing effective risk and money management tactics.
What Determines the GBP/USD Exchange Rate?
Several factors can impact the GBP/USD rate valuation, including:
BOE & US FED Monetary Policies: The Bank of England and Federal Reserve control the supply of money in the market, to keep the economy on track. A dovish policy, which is also known as expansionary policy, weakens the currency. In contrast, a hawkish monetary policy (contractionary policy) strengthens the currency.
Economic Events: Any movement in the US and UK economic events determines the exchange rates. Top of the line economic events include GDP, Employment Change, Industrial Production, and Consumer Price Index. Better than forecast data increases the demand for the related currency and impacts the value of either Sterling or the US Dollar, causing fluctuations in the GBP/USD exchange rate.
What may not be evident on your GBP/USD real-time chart is the influence of forex correlations. You may know that the Forex currencies are priced and traded in pairs, and that no single pair is totally independent of other pairs.
For instance, if you are trading the British pound versus the Japanese yen (GBP/JPY), in fact, you are trading a derivative of the GBP/USD and USD/JPY pairs. This indicates that to some extent, GBP/JPY has to be linked to either or both currency pairs.
But few of them will move in line with each other, and others will run in the opposite direction. Once you recognize this, you can start using this knowledge to your advantage.
Major Economic Events
Gross Domestic Product – the gross domestic product is the central measure of economic growth in the region.
Employment Change – The Sterling is also sensitive to changes in employment, as slacks in the labor market cause a drop in Inflation rates.
Consumer Price Index – Since one of the goals of the BOE is to maintain price stability, they keep an eye on inflation indicators such as the CPI. If the annual CPI deviates from the central bank’s target, the BOE could make use of its monetary policy tools to keep inflation in check.
Industrial Production – This measures a change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities.
Political Events - Another critical factor is the political aspect. Instability, as seen in the Brexit referendum, can entirely change the direction of the currencies. So, stay up-to-date on the latest political and economic news.
The GBP/USD is traded in amounts denominated in US Dollar.
Standard lot Size: 100,000 GBP
Mini lot size: 10,000 GBP.
One pip in decimals 0.0001
Pip Value: $10
Pip Value Dollar = Pip in decimal places * Trade Size
Pip Value in Pound = (Pip in decimal places * Trade Size) / Market Price