- Summary:
- GBPUSD bearish engulfing signal a possible reversal in place for cable. Look for a retracement before going ont the short side.
The GBPUSD pair reacted strongly on the FOMC minutes release. It closed the day at its absolute low – a complete reversal compared with the previous day’s price action. The two opposite daily candlesticks having a strong, respectively weak real body, form a bearish engulfing – a reversal pattern.
But it does not mean that the GBPUSD bullish trend reversed. It only signals a long-awaited correction on the USD’s downtrend, but one that can easily reverse.
The GBPUSD rallied hard in the pandemic, and during the month of August consolidated around the 1.30. Above, but close to 1.30. Yesterday’s reversal is nothing but a move back to the support level.
FOMC Minutes Signaling the Fed Not Willing to Adopt Yield Curve Control Measures
The minutes revealed that the Fed is not looking at yield curve control measures in the United States. One of the reasons why it discards the option is that it may lead to excessive balance sheet growth.
The dollar gained on the news that more easing is not in the cards and staged a comeback across the FX dashboard. The GBPUSD was just one of the currency pairs revealing the dollar’s strength, but similar price action was seen in the EURUSD, AUDUSD, or the NZDUSD.
What is interesting to mention on the GBP side of the story is that every time the GBPUSD corrects, the EURGBP is resilient to fall. It means that the EURUSD is supported on USD comebacks, and the GBP’s volatility is higher than the one seen in the Euro pairs.
GBPUSD Technical Analysis
As mentioned earlier, the GBPUSD bearish engulfing puts pressure on the 1.30 level. Such a reversal pattern forms at the end of a bullish trend. However, the market often tries to make a new high, so a pullback is possible. Look to enter a short position on a 50% retracement into the red candlestick’s territory, place a stop at the highs and target a 1:2 or 1:3 risk-reward ratio.
GBPUSD Price Forecast
