Earlier in London, sterling extended its morning slide after a report showed UK prices, for the first time since March 1960, showed “negative inflation” or “deflation”. The Office for National Statistics said consumer prices fell 0.1% in April y/y, lower than the flat forecast. GBP/USD weakened another 44 pips to 1.5528 after the release.
The GBP/USD daily chart shows that the recent slide that began from the 1.5814 high appears to have been confirmed by a bearish butterfly pattern. The X to A leg targeted point D with 127.2% Fibonacci expansion level, while the B to C slide used the 161.8 Fibonacci expansion level. Downward momentum may see further strength as price is poised to have a daily close below the 200-day SMA. Key support may come from the uptrend line at around the 1.5465 region. Deeper support may come from the 100-day SMA which is currently trading at 1.5151.
If the noted bullish support level is respected, upside may be limited to only the 1.5820 level. Major resistance will come from the psychological 1.60 handle.
The trade: Sell GBP/USD 1.5555, with a stop loss at 1.5595 and take profit at 1.5475. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading