Whipsaw Action Defines Weekly Trade Of GBP/USD

Posted Tuesday, December 22, 2020 by
Shain Vernier • 2 min read

It has been a challenging month for the pound sterling vs the forex majors. New COVID-19 restrictions and the rapidly approaching Brexit Day are both playing major roles in the valuations of the GBP. For the time being, the U.K. is once again facing major uncertainty as lockdowns and the pending E.U. divorce are driving investor angst. 

At press time (about 1:30 PM EST), there has yet to be a final E.U./U.K. trade deal ratified. Key issues such as the Irish Backstop and U.K. fisheries are both undermining market sentiment. However, Britain did see a nice uptick in Q3 GDP, with the figure coming in above expectations at 16.0%. Although there is still a long way to go in the COVID-19 economic recovery, the strong Q3 GDP figures suggest that things are moving in the right direction.

For the USD, it’s been a rare strong session across the forex majors. Intraday bearish moves in the GBP/USD and EUR/USD are the headliners, as traders are bidding the Greenback. Today’s strength in the USD is a bit of a mystery. However, reports of more stimulus being farther down the road than initially expected are beginning to surface. Given this development, traders suspect that the U.S. money supply is due to contract sooner rather than later.

Let’s dig into the weekly technicals for the GBP/USD and see if we can spot a trade or two.

GBP/USD Retraces To Weekly Support

It’s been a rough session for GBP/USD bulls as prices have fallen back beneath 1.3400. With the Christmas holiday bearing down on the markets, it looks as though rates may be entering consolidation ahead of the break.

GBP/USD, Weekly Chart
GBP/USD, Weekly Chart

Here are two levels to watch for the remainder of the week:

  • Resistance(1): December High, 1.3624
  • Support(1): Weekly SMA, 1.3163

Bottom Line: If we see the GBP/USD test the Weekly SMA again, a buying opportunity may come into play. For the rest of the week, I’ll have buy orders in the queue from 1.3169. With an initial stop loss at 1.3139, this trade produces 30 pips on a standard 1:1 risk vs reward ratio.

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