GBP/USD 4H Timeframe Analysis

GBP/USD 4H Timeframe Analysis

Trend Analysis
On the 4-hour timeframe, GBP/USD is in a downtrend, breaking below the previous key support at 1.2300, which is now acting as minor resistance. A bearish engulfing candle followed the break, signaling strong selling momentum.
The price has not yet reached the next support level, as we expect a liquidity hunt to occur above the minor key resistance at 1.2300. This would involve a temporary break above this level, gathering liquidity from stop-loss orders, before the downtrend resumes.
Recent UK GDP m/m data, with an actual of 0.1% versus a forecast of 0.2%, highlights weaker-than-expected economic growth, adding to the bearish sentiment for GBP.

Meanwhile, US economic indicators, including Core Retail Sales m/m (forecast: 0.5%, previous: 0.2%), Retail Sales m/m (forecast: 0.6%, previous: 0.7%), and Unemployment Claims (forecast: 210K, previous: 201K), demonstrate resilience in the US economy. This divergence strengthens the USD against the GBP.

Price Action Expectation:
Our objective is to wait for the price to break above the minor resistance at 1.2300, confirming the liquidity hunt.
Observe for a bearish reversal after the liquidity hunt, targeting a break below the resistance-turned-support at 1.22700.
Once the support breaks, expect the price to continue its downtrend toward the next significant support zone.

Trade Setup

Trade Type: Sell Stop
Entry: 1.22700 (upon confirmation of the break below resistance-turned-support)
Stop Loss: 1.23440 (above the liquidity zone to avoid false breakouts)
Take Profit: 1.20730 (targeting the next significant support level)
This setup requires patience and discipline, ensuring the liquidity hunt and subsequent price action align with the bearish outlook..

Fundamental Outlook:
Recent economic data highlights divergence between the UK and US economies, with the UK’s GDP m/m showing sluggish growth at 0.1% (forecast: 0.2%, previous: -0.1%) pressuring the pound, while the US economy displays strength with Core Retail Sales m/m forecasted at 0.5% (previous: 0.2%), Retail Sales m/m at 0.6% (previous: 0.7%), and Unemployment Claims expected at 210K (previous: 201K), showcasing robust consumer activity and a stable labor market, bolstering the dollar.

Risk Management
Maintain a 1:2+ risk-to-reward ratio to optimize outcomes.
Position size should align with your account equity for effective risk management.
Monitor liquidity zones closely to avoid premature stop-outs.
Trading involves significant risks and is not suitable for all investors. Always seek advice from a financial professional if unsure about trading decisions.