GBPUSD pair entered a very dense support zone

Recent breakdown of the important support zone 1.3450-1.3500 opens the way for the GBPUSD pair to further decrease to the bottom of 1.33. But at the same time, despite the apparent predominance of sellers in the market, further decline in the pair below 1.33, in our opinion, is a big question.

The fact is that the pair entered a very dense support zone, which means that at any moment the downward movement may stall. In turn, any stop in the downward movement can trigger fixation of the profits by the sellers, which will form the reversal signals first in the oscillators, and then in the fast averages, and ultimately lead to the long-awaited correction in the pair. The fact that the correction has already matured is indicated by the strong oversold of the oscillators, even on the daily charts: RSI (8) is firmly entrenched in zone 20, which is a signal that the movement is abnormally one-sided. In addition, we can note the divergences in the indications of technical indicators and the price chart. All this together creates almost ideal conditions for the start of correction.

The decrease in the GBPUSD pair by 2/3 is due to the strengthening of the dollar in the foreign exchange market, it is obvious that the correction for the dollar in the pair should be the main driver for the possible corrective growth of the pair. And it also matured: all the necessary set for this on the chart of the Dollar Index is present (it is a question of the strong overbought, divergence and the upper boundary of the medium-term range, which the Dollar Index has just reached).

In favor of starting the correction from the area of 1,33-1,34 says the fact that this week there will be a few important events for the pound. Starting from the next round of negotiations on Brexit and ending with important economic reports on the UK (inflation data, retail sales and finally figures for the country's GDP), as well as the speech of the head of the Bank of England, Mark Carney. It should be noted that strong economic data will automatically activate the talks about raising the rates by the Bank of England, which will inevitably provoke the growth of the British currency.

Recall also that according to Morgan Stanley’s currency strategists pound is one of the most undervalued currencies in the group G10. The level of undervaluation by different estimates ranges from 5% to 10%.

In total, now the pair is in a situation where it has already sunk so much that there are fewer and fewer people willing to sell it, but the temptation to start fixing profits on sales is the maximum. Current conditions are almost ideal for the start of correction, which are confirmed by the indications of technical indicators. So, our position is buying the GBPUSD pair with minimal targets near the 1.40 and above. And this is equivalent to a profit of 600+ points per deal. That is, the ratio of potential losses / profit is extremely attractive.