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Technical Update - GBPUSD set to resume downtrend. Multi-decade cycles indicate down trend until 2025. Parity in sight

Forex 4 minutes to read
KCL
Kim Cramer Larsson

Technical Analyst, Saxo Bank

GBPUSD: Downtrend seems to resume after nice rebound to 0.618 retracement. Lows around 1.03 could be tested. 
Historically, GBPUSD has been moving in cycles of approx. 8 years with 1.40 as major support and pivot level. Cycle length indicates downtrend could extend until 2025 dropping below parity in the process.

GBPUSD has rebounded to the 0.618 retracement of the recent sell-off around 1.12. Buyers seem to run out of steam and down trend Is likely to resume.
If GBPUSD takes out today’s high at 1.1235 it is likely to continue to around 1.14. 1.14 is the 0.786 retracement but more importantly it was the key support prior to the massive sell-off.
However, the picture is bearish. RSI is bearish with no divergence indicating likely lower levels. 
If GBPUSD takes out 1.0535 all-time low at around 1.03 is quite likely to be taken out.

GBPUSD d 30sep
Source: Saxo Group

Weekly chart: GBPUSD retraced 0.236 of the entire down-trend since 1.4250 peak in 2021. Also, on weekly RSI there is no divergence indicating lower levels.

GBPUSD w 30sep
Source: Saxo Group

So how low are we talking about? The Monthly chart going back 50 years might provide an estimate.
Going back to the 1970’s it seems like GBPUSD has been moving in cycles of approx. 96-98 months i.e., around every 8th year. 1.40 has been the Pivot point and key support since 1985. That was until 2016 when GBPUSD broke below with a bang. Since then, GBPUSD has failed to stay above 1.40 for long, being send back below 1.40 every time. And now it seems as it could take many years before it gets even close to that level again.

There are several scenarios that could unfold until the current cycle ends in End-2024/2025. Illustrated by the vertical coloured arrows. If GBPUSD is to move as much as the distance from 1.40 to the three peaks since 1985 in the opposite direction i.e., down, there could be much more down side in store for Sterling.
GBPUSD has already moved same distance as the 2015 peak to 1.40 and then some (green arrow) i.e. 30 big figures.
If GBPUSD is to move as much as the distance from 1.40 to peak in the 1990’s it would drop to around 0.80. (purple arrow).
2.0 Projection of the 2020-2021 correction is at 0.85. GBPUSD dipped to 1.382 projection a couple of days ago. 

RSI is still above the 1985 lows where market turned around after being well below 1.40. If GBPUSD takes out the 1.03 low from this week it could find some support at the lower falling trend line in what looks like a big falling wedge like pattern, and at the
1.618 Projection at around 0.9655. That level is also the 1.618 projection of the 1.40 support/pivot level to 2.116 peak in 2007.

Of course, similar to EURUSD, parity will be a massive psychological support level where a lot of fighting is to take place between Bears and Bulls, and maybe a Central bank or two. 
If GBPUSD drops to 0.9655 the RSI is likely to test the 16 level where a bounce could be seen.
To demolish this - or these - bearish scenarios a move back above 1.40 is needed. Indication of that to play out would be a close above the upper falling trend.

GBPUSD M 30sep cycles
Source: Saxo Group
Monthly chart with cycles and Fibonacci levels - zoomed in
GBPUSD M 30sep cycles zoom
Source: Saxo Group

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