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Pound-Dollar: Bulls and Bears Battle Over 1.29 Objective, Technical Analysts Forecast Further Losses

Pound sterling trade

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- GBP/USD in step decline as Brexit news weighs

- Break below 1.2900 key to more declines to 1.28s

- Break below April lows would be very bearish sign

Pound Sterling is engaged in a significant technical battle against the Dollar in mid-week trade with the objective for both 'bulls' and 'bears' being the 1.29 level.

1.29 is something of a technical rubicon on the Pound-to-Dollar exchange rate chart: if the buyers can hold it the downside pressure suffered by Sterling over recent days might just relent.

"Cable bounces of 1.29 - signs of 'buy the dip' mentality prevailing in a thin market," says foreign exchange strategist Viraj Patel with Arkera.

Pound bounces off support

However, a break below 1.29 opens the door to the short-term trend lower extending.

Psychologically the atmosphere has turned bearish since this key big-figure break of 1.30. Several technical analysts think it will probably break below the key 1.2900 level now and hit targets in the 1.28s.

GBP to USD 4 hour chart

Micaella Feldstein, an analyst at Natixis, a French investment bank, expects a move down to the 1.2874-80 level. She sites the “weekly stochastic”, a widely used momentum indicator, as having “fallen back” and this suggests the pair has limited “rebound potential” in the short-term - and it is more likely it will continue to fall to targets sub-1.2900.

Swissquote, a Swiss online bank, also targets further downside, but to a level a tad lower at 1.2865. For confirmation the pair must break below 1.2900 first.

Richard Perry, the market analyst at FX broker Hantec Markets also highlights the 1.2865 April lows as a potential target.

“The two negative candles of the past two sessions brings the key support at $1.2865 from April back into range. Whilst an initial consolidation has set in early today, there is little real expectation that this would be the precursor to a recovery,” says Perry in a strategy note to clients.

As the chart below shows 1.2865 is also just above the lower boundary of the bollinger band indicator which is a jacket drawn at 2 standard deviations from the price. It usually marks oversold and bought levels quite accurately and suggests 1.2850 may be another key downside target for the pair.

GBP to USD May daily

The April lows are a key make-or-break level says Natixis, which if breached, would see a near capitulation down to the 1.27s.

“The utmost vigilance will be in order: a failure to rebound on these last levels would signal a pronounced deterioration in the pair’s technical configuration, with as new targets the supports around 1.2785-1.28 (Fibonacci projections) and around 1.2727-1.2746 (lower band of weekly Bollinger),” says the bank in relation to the 1.2865-75 April lows.

Perry, meanwhile, sees intraday rallies as an “opportunity to sell” with a break below 1.2865 opening up 1.2770/1.2815.

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