Pound-Dollar: "Beautiful Technical Reversal" Means 1.20 and Below Are Possible Says FxPro

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The British Pound could be on course to record a fourth successive daily loss and the technical setup advocates for further declines, according to a new analysis.

In fact, Alex Kuptsikevich, Senior Market Analyst at FxPro, says ensuing declines could bring a retest of October lows and a dip under the psychologically important 1.20 level.

"GBPUSD was in demand on dips under 1.2100 during October, which formed a bottom in the pair. At the beginning of the month, we saw a pick-up in buying following the global increase in risk appetite. But this week, the bulls have retreated," says Kuptsikevich in a recent analysis.

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Pound Sterling rose sharply against the Dollar following the previous week's Federal Reserve update and U.S. jobs report, which both pointed to a reduced chance of another rate hike in the current cycle.

Pound-Dollar peaked at 1.2440 on Monday, but analysts note a touch of the 200-day moving average kicked off another sell-off.

As long as the exchange rate remains below the 200-day MA, Kuptsikevich says it won't attract interest from "many big players, leaving it within a 'sell the growth' pattern".

"The recent surge also fits within a Fibonacci retracement pattern. GBPUSD declined from 1.3140 in mid-July to 1.2030 in early October, and the latest corrective surge brought the pair very close to the 61.8% retracement levels. This may have helped the bears to recharge by removing the short-term oversold condition," adds Kuptsikevich.

After a downward reversal at the start of the week, the FxPro analyst says GBPUSD could reach 1.21, near local support, without many obstacles.

"The pair's dynamics in the 1.2060-1.2100 range could be an essential indicator of the bears' seriousness. A quick drop below will open the way further to 1.1840 - near the lows of January and March. The long-term downside target for this cycle could be 1.1400," he adds.