The Pound-to-Dollar Rate has Ceded Control to the Bears after Slipping Below 200-day Average

© kasto, Adobe Stock 

- GBPUSD bears in control despite rebound Friday.

- Break below 200-day average a significant bearish sign.

- Next targets in the 1.27 area; 200-day to now offer resistance.

The Pound-to-Dollar exchange rate has ceded the initiative to the bears in recent days, reinforcing the bearish short-term outlook and raising the distinct possibility of a continuation down to the next set of targets near the 1.27 February lows.

The pair has looked compromised ever since breaking below the 1.3000 rubicon. So far it has fulfilled its bearish promise. A steadily improving outlook for the U.S. economy, backed up by proof in the form of strong GDP figures today, has conspired to push the pair lower overall this week.

Sterling has now broken convincingly below the 200-day moving average (MA) at 1.2962, which was the last bastion of resistance once the 1.3000 threshold gave way. This means the path ahead is now open to deeper declines.

Above: Pound-to-Dollar rate shown at daily intervals.

The next major support level is the February low at 1.2775. In between, there is little in the way. But the market posted a doji candlestick yesterday after touching down on the S1 monthly pivot at 1.2868 and this has been followed by a recovery.

Pivots, as the name suggests, are levels where reversals are anticipated. They were used once upon a time by pit traders as a rough and ready guide to overbought or - as in this case - oversold levels.

GBP/USD has bounced softly from off the S1 pivot today. This comes despite the U.S. data beat and is likely the result of a 'buy the rumour, and sell the fact' trading of the Dollar. 

Nevertheless, the last two days rebellion against the dominant downtrend posses a challenge and ideally we would like to see a break below the doji’s low for confirmation of a continuation of the bearish trend lower.

Today’s rebound is likely to be capped by the 200-day average at 1.2962 at which point it will probably stall and reverse. From there it should start the next leg lower towards the 1.27s.

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