GBP/USD: Will U.K. Wage Growth Trigger a Rebound ?

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The GBP/USD currency pair has been on a free fall since mid-April. However, starting last week, the pair seems to have established a base at around the 1.3500 level, which also happens to be a psychological support zone.

The Pound suffered from a series of negative economic data that failed to bring optimism in the market. On the other hand, coming from a back-end of another rate hike in March, the U.S. Dollar enjoyed positive Federal Reserve committee comments on economy while the 10-year benchmark bond yield breached the 3% mark for the first time since 2014.

However, as we pointed out last week, the U.S. Dollar’s strong run appeared to run out of steam subsequently suffering exhaustion at a key support zone against the GBP. And now, it looks like the only way is up even despite the fact the Bank of England remains unconfident on rate hike in the coming weeks and months.

However, investors have found another reason to be confident on the U.K. economy with wages expected to grow at a rate of about 3.0% to 3.5%.

Sterling could benefit from a stronger wage growth thereby triggering a major rebound against the USD.

So, what could traders target this week going to the second half of the month? The 4-hourly chart below tries to identify key exchange rate targets for the bulls as well as the bears.

GBPUSD Chart May 15, 2018

Looking at the 4-hourly chart above, it looks like the GBP/USD currency pair slipped from an upward trending channel in mid-April. The upper channel enjoyed a strong ascending base with the exchange rate rebounding off it on numerous occasions.

The slide took the pair to the lower and wider ascending channel, which also seemed to enjoy strong upward trending support zones previously at 1.2500 and 1.3200 levels. The current resilience shown by the pair at 1.3500 level also coincides with the support base for the lower ascending channel, which explains why traders think it could trigger the rebound that the market has been waiting for since the start of the month.

As such, traders are already looking at potential trading targets at 1.3800 level if the pair can register a rebound while a continuation of the current sideways movement has a bullish target at 1.3600. However, should the GBP/USD currency pair defy the odd and continue to fall, then the bears could start looking at 1.3300 and 1.3400 as potential take-profit zones.

For those looking for a higher target at potentially 1.4000 and 1.4200 the daily chart below has a clearer picture.

GBPUSD Daily Chart May 15, 2018

When you put things in the daily chart above, the two ascending channels are merged to form a single and slimmer channel, which appears to enjoy strong upward trending support and resistance zones.

The GBP/USD pair appears to have recently broken out of that channels after going through a double-top pattern, which triggered the massive plunge during April.

However, when a double-top pattern leads to a major breakout from the previous trend or channel, a resumption of that trend or channel usually takes place thereafter. In this case, the pair has found a major support zone at 1.3500 and this appears to be providing traders with the necessary technical optimism that could prompt a rebound in the GBP/USD.

Long-term traders could target profits at 1.4000 level at (R2) or go for the jugular by targeting the 1.4300 to 1.4400 profit zone denoted by (R3). The 1.3800 level, which coincides with the Fib retracement 50% makes a good target for short-term traders while.1.3600 at Fib. 20% is also a potential target especially if the pair continues to exhibit indifference in the near term.

However, while the rebound remains to be the most attractive direction for the pair right now, there is still room to run down below and it cannot be ignored.

Currently denoted by (S1) at 1.3490 and (S2) at 1.3300 are key target zones for bears if the pair was to slip further while more cratering could actually see the GBP/USD test 1.3000 for the first time since August last year.

In summary, the Cable as it is popularly known in the global forex market is highly expected to rebound from its recent plunge and the U.K. wage growth could be the trigger.

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