GBP/USD – Down but not out

Aug 4, 2016

Bank of England cut rates and caught markets off guard by increasing the QE program. The result was a drop in GBP across the board. Cable retreated from the pre-BOE high of 1.3345 to a session low of 1.3111.

At the time of writing, the pair traded around 1.3135.

Daily chart – Bearish Symmetrical triangle breakout, but bullish invalidation only below 1.3056

• Pair’s failure to hold/take out above 1.3363 (50% of 2007 high-2009 low-2014 high) earlier this week and a drop from the high of 1.3345 to 1.3111 is demoralizing for the bulls, but still bullish invalidation is seen only in case of a daily closing below 1.3056, in which case the post Brexit vote low of 1.2789 stands exposed.
  

• A daily closing below 1.3074 would also indicate bearish break from symmetrical triangle, although bears would need a break below 1.3056 levels.
  

• As long as 1.3056 holds, the probability of a move back to 1.3363-1.35 remains intact.
  

• Note: in case we close below 1.3174 today, then the spot may find itself stuck in the range of 1.3315 (23.6% of 1.5019-1.2789) - 1.3056 levels for the next few days.