The British pound (GBPUSD) has clawed back part of last week’s losses and is now nearing the August 1 low of 1.2079. The August low is essential as the pair traded sideways above the low from August 1 until August 9, and the break to the low opened the door for further losses in the pair.
The main factor driving the British pound lower last week was the disappointing UK GDP figures for the second quarter of 2019, which showed that the economy contracted. Another quarter of contraction seems likely as the economy is heading toward a no-deal Brexit, and would result in a technical recession. It is, however, important to remember that the labor market and wage growth is holding up well despite the economy contracting.
Technical outlook, the GBPUSD trend will remain bearish as long as the price trades below the August 6 high of 1.2211. The Fibonacci levels on the slide from the August 6 high to the year-to-date low of 1.2014, suggest that the price could resume its decline between 1.2089 and 1.2169. If the price indeed turns lower in the interval mentioned above, I suspect traders will target the 2016 low of 1.1947. The 1.1947 level is also the target level of a “failed head and shoulders pattern,” that I have been mention over the last few months. Beyond 2016 low, we need to look at the 1985 low at 1.05 for the next level of strong support.