GBP/USD: a recession follows inevitably an upturn

30 January, 2015

Current trend

Week UK statistics were released again before noon yesterday. This time, the retail sales index dropped almost twofold.  Then the favourable data on the US labour market helped the dollar to put increased pressure on the GBP/USD. The pair broke a few important support levels and dropped below 1.5030, and then partially recovered losses.

Today, the GBP/USD did not show high volatility, but the information on UK mortgage loans, publication of key indexes and preliminary data on US GDP in fourth quarter of the previous year will probably dynamize the pair.

The demand for dollar continues to rise. The pound's upward correction was only a temporary respite after which investors resumed buying the American currency.  High growth rates of the US economy continue, but let's remember that every rise is inevitably followed by a recession. The American currency is substantially overbought, which starts to affect US exports, therefore the growth will be replaced by a substantial correction in the shortest time.

Support and resistance

The pair is very likely to drop to local lows of July-March 2013 (1.4825), but a breakout will require not only a growing demand but also fundamental catalyzers.   A level of 1.4825 will probably be critical.

Support levels: 1.5050, 1.5030, 1.5000, 1.4950, 1.4890, 1.4825.

Resistance levels: 1.5100, 1.5120, 1.5190, 1.5225, 1.5270, 1.5350, 1.5485, 1.5550.

Trading tips

This situation implies increasing short positions with profit fixing at 1.4830. After a level of 1.4830 is reached, long positions with short Stop-Loss and Take-profit at 1.5550, 1.5700 will be relevant.

Dmitry Likhachev
Analyst at LiteForex Investment Limited

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