Image © Adobe Images

- 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.

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.

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.

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.

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.

* Advertisement