GBP/USD Price Analysis: Fibonacci confluence zone to act as support
The Fibonacci confluence area offers an opportunity to buy into dips
Market highlights from the last week
Monday 11 May: There were reports of UK Cabinet divisions over the government’s latest coronavirus strategy, reinforcing concerns over the effectiveness of government policy
Tuesday 12 May: In comments on Tuesday, Bank of England Deputy Governor Broadbent stated that the central bank would have to consider the pros and cons of negative interest rates.
Wednesday 13 May: Overall confidence in the UK outlook remained fragile despite evidence that consumer spending had recovered slightly during the second half of April
Thursday 14 May: Sterling recovered some ground late in US trading, but overall remained on the defensive with GBP/USD near 1.2200
Friday 15 May: EU chief negotiator Barnier stated that the UK demands were unrealistic and warned over potential stalemate while the UK threatened to walk away from the talks
GBP/USD Price Analysis
Let us have a look at the technical viewpoint.
Monthly: Traded to a multi-year low in March of 1.1408. April’s price action posted mild net gains but all trading inside the previous months range, an indecisive Inside Month
Weekly: Levels above 1.2640 found sellers on two occasions. The move lower is mixed and volatile, common in corrective formations. The 50% pullback level from the 1.1410-1.2647 move is located at 1.2032
Daily: The move to the upside, from the 1.1409 base, can be seen in 5 -waves. As far as Elliott Wave is concerned, this would suggest that we are in the corrective ABC formation lower. A 161.8% extension level of the 1.2649-1.2268 move is seen at 1.2032. This offers a Fibonacci confluence area with the 50% pullback of the weekly chart
Outlook: Limited downside. The Fibonacci confluence area offers an opportunity to buy into dips
Possible trade setup
Action: Buying at 1.2035
Potential return on risk to first target: R8 (reward 415 / risk 50)
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