GBP/USD Technical Analysis - GBP/USD Trading: 2015-05-25

Pullback may continue

Today we would like to go back to the GBPUSD chart, we have already analyzed the previous week. As expected, it pulled back after the two-month grow. We believe that the downtrend may continue. The main reasons are the strengthening American dollar and the 0.3% increase in base CPI in April, the strongest one since January, 2013. We remind that the index added 0.2% in March as well. On Friday Fed chair Janet Yellen stated that they were ready to raise the rate this year. Due to that the GBPUSD retreated to its three-week low that day. Investors discarded better-than-expected Public Sector Net Borrowing statistics: in April the state took 27% less loans, as compared to the previous year. We suppose that ignoring positive macroeconomic data may indicate that market participants expect the pullback to continue. On Thursday Q1 GDP will be released in Great Britain. This information is considered even more important. The positive outlook restrains the probable drop of the British pound.

The GBP/USD has declined further and shaped a bearish engulfing pattern. It is located below the 200-day Moving Average. Parabolic is descending, while RSI-Bars hasn't yet gone below 50. Donchian channel has significantly expanded, which may indicate surge in volatility. In our opinion, a new momentum may appear, when the chart breaks down the latest lower fractal at 1.544. A stop loss may be placed at the latest upper fractal at 1.57. After pending order activation the stop loss is supposed to be moved every four hours near the next fractal high, following Parabolic and Donchian signals. The most cautious traders may switch to the H4 time frame and place a stop loss, moving it after the trend. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price reaches the stop loss without triggering the order, we recommend to delete it: the market sustains internal changes that were not considered.