Introduction
The British Pound futures (6B) have been under pressure, with the price now trading within a support zone formed in October 2023. This weakness aligns mainly with the strengthening U.S. dollar, driven by optimism surrounding President Trump’s re-election and the anticipated implementation of pro-growth economic policies. Let’s analyze the technical and fundamental factors influencing the Pound’s price action.
Fundamental Overview
Strengthening U.S. Dollar:
- The dollar continues to rally on optimism surrounding the Trump presidency, with expectations of tax reforms, fiscal stimulus, and trade policies boosting demand for the greenback.
- Rising U.S. Treasury yields, fueled by the Federal Reserve’s potential hawkish stance, have further solidified the dollar’s dominance, making it difficult for other currencies, including the Pound, to gain traction.
Implications for the British Pound:
- As the dollar strengthens, the Pound and other major currencies are likely to struggle. The Pound’s depreciation reflects this as investors flock to the safer, higher-yielding U.S. dollar.
- Brexit-related uncertainties and weaker-than-expected economic data in the UK have compounded the bearish outlook for the Pound.
Technical Analysis Overview
Support Zone:
- The price is currently trading within the 1.2184 – 1.2000 support zone.
- This zone has previously acted as a springboard, making it a crucial area to watch for potential buying interest or further breakdown.
Resistance Levels:
- 1.2623 (50-day SMA): The immediate resistance level that the price must reclaim to signal any bullish reversal.
- 1.2878 (100-day SMA): A key long-term resistance that aligns with previous swing highs and reinforces bearish sentiment if price remains below it.
Support Levels:
- 1.2184 – 1.2000 Zone: The current support area that has so far absorbed selling pressure. A decisive break below 1.2000 would likely lead to accelerated selling.
- 1.1900: A psychological level that could serve as the next support if the current zone fails.
Indicators Analysis
Relative Strength Index (RSI):
- The RSI is oversold. This could lead to a short-term bounce, but the overall bearish momentum remains intact.
Moving Averages:
- The 50-day SMA (1.2623) and 100-day SMA (1.2878) are both sloping downward.
Scenarios to Watch
Bullish Case:
- If the Pound holds above 1.2184 and the support zone absorbs selling, a relief rally could occur.
- A breakout above the 50-day SMA (1.2623) would signal a potential short-term reversal, with further upside toward 1.2878 (100-day SMA).
Bearish Case:
- A sustained break below 1.2000 would expose the Pound to further downside, with the next target at 1.1900 or even lower.
- Continued dollar strength, driven by optimism around the U.S. economy, would likely accelerate this decline.
Trade Ideas
Bearish Setup:
- Entry: Short positions below 1.2180, targeting a breakdown toward 1.2000 and 1.1900.
- Stop-Loss: Above 1.2300 to minimize risk.
Bullish Setup:
- Entry: Long positions within the 1.2184 – 1.2000 support zone if buying interest emerges.
- Targets:
- First target: 1.2623 (50-day SMA).
- Second target: 1.2878 (100-day SMA).
- Stop-Loss: Below 1.1900 to limit downside risk.
