The current correction is a common occurrence due to the strong uptrend it has been in since December 17. A sharp break of this trend channel below 1.3650 and a close on daily charts below this area could be the beginning of a change in trend and in the coming days GBP/USD could fall towards the 200 EMA located at 1.3487.
In the UK, Prime Minister Boris Johnson's position is at risk due to serious political problems for violating his government's covid rules. This political uncertainty has capped the GBP/USD's rally which had been supported by the US dollar's weakness.
When there is fear and uncertainty, the country's currency tends to weaken and this could happen in the coming days with a drop to 1.34.
The US dollar index (USDX) is recovering from the sharp drop that occurred last week. On Friday, the technical bounce started after reaching the low of 94.58. The index is now trading above the 21 SMA (95.00) which means a positive bias for the US currency. If in the next few hours, the index consolidates above 94.92 (3/8), it is expected to continue the upward movement with targets towards 95.70 (200 EMA).
The valuation of the dollar index is likely to continue to affect GBP/USD in the short term. As long as the GBP trades below the 21 SMA at 1.3692, the short-term outlook remains negative.
Since December 31, the Eagle indicator has been giving an overbought signal. After a decrease in volume, the pound resumed its upward movement again, reaching the level of 1.3747. The eagle indicator is again showing exhaustion and overbuying levels. A technical correction is likely to occur in the coming days towards the support of 6/8 Murray located at 1.3452.
Our trading plan for the next few hours is to sell as GBP/USD consolidates below 1.3692 (21 SMA). A confirmation of the break below the uptrend channel could be an opportunity to sell around 1.3652 with targets at 1.3549 (7/8).
Support and Resistance Levels for January 17 - 18, 2022
Resistance (3) 1.3772
Resistance (2) 1.3728
Resistance (1) 1.3690
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Support (1) 1.3638
Support (2) 1.3600
Support (3) 1.3549
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Scenario
Timeframe H4
Recommendation: sell below
Entry Point 1.3650
Take Profit 1.3549 (7/8), 1.3487 (200 EMA)
Stop Loss 1.3695
Murray Levels 1.3793 (+1/8) 1.3671 (8/8) 1.3549 (7/8)
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