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18.05.2020 11:18 AM
Analysis and forecast for GBP/USD on May 18, 2020

Hello, dear traders!

Last week, the British currency fell significantly against the US dollar, and became the second-largest loser, after the New Zealand dollar. One of the main reasons for the decline in the pound was rumors about the possible introduction of negative interest rates by the Bank of England. Against this background, investors rushed to sell off the British currency.

Meanwhile, residents of the United States of America protested against the quarantine restrictions and demanded to finally find a vaccine against COVID-19. US President Donald Trump came under a serious wave of criticism, went to the White House administration and former US President Barack Obama. However, this did not prevent the US dollar from strengthening its position across the entire spectrum of the currency market.

Since the main attention in the articles is paid to technical analysis, we will immediately proceed to consider the charts of the pound/dollar currency pair and start with the results of the week that ended.

Weekly

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As can be clearly seen on the weekly chart, during the strong decline, important support levels of 1.2265 and 1.2165 were broken through. The pressure strength is indicated by the absence of the lower shadow of the last candle. However, after such strong falls, there is usually some adjustment of the exchange rate. In this case, the nearest target of a possible correction can be broken support of 1.2165, after which the pair again risks turning in the south direction and continuing its downward dynamics.

With this development, the nearest target at the bottom will be the Tenkan line of the Ichimoku indicator, which runs at 1.2046. Given the iconic psychological level of 1.1000, the support zone can be defined as 1.2050-1.1000. A further target for sellers will be the mark of 1.1957.

At the moment, judging by the weekly chart, the main scenario for GBP/USD looks downward. If this assumption turns out to be correct, we will look for options for selling on smaller timeframes.

Daily

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At this time period, it is particularly clear that the support at 1.2165 has long held back further decline, so it can be considered a key one. At the moment of writing, the pair shows growth, which is likely to be considered a correction to the previous strong decline. At the same time, only one candle closed below the level of 1.2165, so it is too early to consider the breakdown of this mark as true, in my opinion. Let's see how the pair will behave if it returns to 1.2165. If daily trading closes above this mark, its breakdown will look false. According to the author's personal opinion, the truth of a breakout of a certain level can be judged after closing three consecutive candles under or above it, in this case - daily. For now, even on this timeframe, sales after a pullback to 1.2165 looks technically justified.

H1

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The technical picture that is observed on the hourly chart confirms the idea of sales after a pullback to 1.2165. As you can see, here is a simple moving average that is quite capable of providing additional and quite strong resistance.

To open short positions at more attractive prices, I recommend taking a closer look at the rise to the strong technical level of 1.2200. In addition, near this mark is the black 89 EMA and the upper border of the descending channel. Since the pound/dollar is trading under the middle line of the descending channel, it has all the chances to provide the nearest resistance and turn the price down. In this case, the earliest and most risky sales can be tried from the price zone of 1.2120-1.2127.

Here, perhaps, are all the main trading ideas for the pound today. I expect a daily review of this currency pair, so we will inform you about possible adjustments to open trading positions, as well as the most important fundamental data.

Good luck!

Ivan Aleksandrov,
Analytical expert of InstaForex
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