All forex traders must have known a pair which is one of the major pairs, GBPUSD. In this review, I will write about the Forex GBPUSD trading strategy.
This will be an interesting review not only for beginners. But also for all possible forex traders can take advantage of this information.
Although it is far from the word perfect, I am sure that you will be able to sift through which information is useful and which you might use as a trading reference.
But clearly, this is not an investment or trading advice where you trade at your own risk.
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GBPUSD is the British and American currency pair. GBP represents the British pound and USD represents the American dollar. Both are among the leading currencies in the world with their respective histories.
Britain, despite being small in size and economies of scale, still holds the largest economic power in the world. The pound sterling has an important position in the financial world so this currency deserves to be one of the popular choices among forex traders to become the asset of choice for trading.
Even though it only consists of small islands, the British economy has become a prominent one and can dominate international trade.
The pound sterling in its time to be the world’s unofficial currency. However, after the world war, Britain experienced an economic decline.
On the other hand, America is experiencing rapid economic growth and can dominate the world economy. The downturn in economic growth was due to the tight regulations set by the government and the tight labor market which resulted in less active economic activity.
However, Britain is still trying to get up to recover its economy. And in the 1980s Britain regain its economic strength so that it became the center of financial activity on a global scale. The growth of bankers in the UK and outside of London has become an important factor in the UK’s economic activity.
Until recently, both the US dollar and the British pound were the currencies for which many traders chose this instrument. Among traders in the community calls it “cable”. Because at the beginning of the market bid and ask prices from London to New York were via underwater cables in the Atlantic Ocean.
Charts on GBP/USD are often aggressive charts throughout the year. The chart movement ranges are very fast. In a matter of a few hours can reach more than 100 points. Fundamental news that often appears from GBP and USD can have an impact on this pair, because of the large number of traders on the GBPUSD pair.
Some of the characteristics of the GBPUSD pair are as follows:
- Broker spreads tend to be low in the range of 2-3 pips, however, brokers that use variable spreads may stretch during high news impact.
- Daily moving average: 150-200 pips.
- The movements of the most active pairs in the London Session and New York Session.
The factor that affects GBP/USD
As a major currency pair, the GBP/USD is very vulnerable to various factors that can influence price movements. Because many market players trade GBP/USD, so the psychological factors of market players vary by several conditions related to GBPUSD.
These factors include the following:
Bank of England (BoE) Policy
The BoE is the UK’s central bank. As the central bank, it plays a role in regulating monetary policy to support price stability and support the government’s efforts to improve economic conditions to increase employment rates.
The government is targeting a maximum retail price inflation rate of 2.5%, If the BoE’s policy does not succeed in holding back the rate of inflation, usually this will harm the GBP currency.
Changes in Interest Rates
The central bank interest rate is the minimum loan interest rate or base interest rate for transmitting monetary policy regulation.
Currency traders will usually watch for changes in the base interest rate to determine whether to buy or sell. In this case, the Monetary Policy Committee (MPC) has the authority to decide to change interest rates.
Gilt-edged securities are Government bonds, its difference between the 10-year yield of the British government and the 10-year American treasury. It can impact the currency exchange.
Euro sterling deposit
Euro sterling is a GBP deposit in a bank outside the UK. Having a 3-month deadline deposited in banks outside the UK can be an indicator for determining interest rate differences to estimate exchange rates.
If the greater the difference in interest rates that supports Eurodollars, the more likely the GBPUSD will decline. However, this factor sometimes does not apply because other factors are more dominant.
The difference between the futures contract on the three-month Eurodollar and Eurosterling deposits can be used to assess changes in GBPUSD.
Although the Treasury’s role was diminished in June 1997 due to the BoE law, it still plays a role in determining the inflation target for the government through the BoE.
Economic data that can affect the value of the GBPUSD currency are unemployment claims, claimant unemployment rates, average income, RPI-X, retail sales, offers (M4), the balance of payments, and house prices.
Unlike the US or Japan, the UK’s main stock index has little influence on the currency. However, the FTSE-100 and the Dow Jones Industrial Index still have a very strong positive relationship and influence on global markets.
How to trade GBP/USD
The basic concept of how to trade the GBPUSD pair is to understand the basic terms of a currency pair. GBP in this case is the base currency and USD is the quote currency or counter currency.
If on the chart we see the GBPUSD price at 1.2976, it represents a value of 1 pound sterling equal to 1.2976 USD. Some brokers specify a five decimal after the decimal point, but most are just four decimals after the decimal point. Traders call it a 4-digit broker and a 5-digit broker.
However, in practice, the broker will provide two quotes for buying and selling with the difference between the spread cost and the actual price.
If the broker sets the spread fee of 2 pips then the GBPUSD price is 1.2976 then the broker will give a Bid offer at 1.2978 and ask price at 1.2974. The price difference is the spread fee that the broker charges traders as profit for the company.
So if you open a buy position and immediately close the position with no change in price, you have received a loss of 2 pips as a broker spread fee, to cover the spread fee at least the price must move up by 2 pips according to your expectation.
What if the price goes up?
If you open a buy position and then the price moves up, there is a high probability of getting a profit. Say you opened a position at the bid price at 1.2976 and at that time the ask at 1.2974.
The price eventually moved up to the bid price of 1.2996, and the ask of 1.2992 and you liquidated the order as an exit point so a profit of 20 pips was made from 1.2996-1.2976.
What if the price drops?
If you open a buy position and then the price moves down, there is a high possibility of getting a loss. Say you opened a position at the bid price at 1.2976 and at that time the ask at 1.2974.
But then the price finally moves down until the bid price is 1.2956, and the ask at 1.2952 and you liquidate the order as an exit point so a 20 pips loss has been made from 1.2976.- 1.2956.
GBP/USD Long term trading
How to trade GBPUSD can be done as a long-term trading plan, in this case, traders must pay attention, especially to the fundamental conditions of the British economy, which is the base currency.
But it is also important to pay attention to the news about America’s condition concerning the USD, often if the USD strengthens or weakens, it will happen in almost all USD pairs.
In terms of a technical approach, the long term trading plan uses a large timeframe to reference long-term support and resistance. Traders usually use the Daily or the week for reference for long term analysis.
Pay attention to the highs and lows of historical prices, and compare it to the current price, if it is still too far from the support and resistance areas then this is not a safe area to enter the market because of the potential for prices to rise or fall is still fifty-fifty.
GBP/USD short-term trading plan
The high volatility in GBP/USD sometimes attracts some traders to seize the opportunity of the ever-fluctuating price waves. Traders try to take advantage of short-term trading but with high trading intensity.
In this case, usually use a low timeframe such as M5 or M1 to capture opportunities from short-term price movements.
A simple way to trade on the GBPUSD pair is to focus on paying attention to the support and resistance zones of a price.
To apply this simple trading method requires a lot of patience because most traders’ illnesses are wanting to profit quickly with a fear of missing momentum.
GBP/USD Historical rate
GBPUSD price history is inseparable from various historical stories that are important in the formation of its price. The data obtained, which originated from Tradingview sources, found that historical prices from 1972 to 2020 have an all-time high price range of around 2,6000 prices and an all-time lowest price of 1,0000.
Chart by Tradingview
In the history of the GBPUSD price, the world spotlight was when Soros and several other speculators began to accumulate short-selling positions on the pound sterling because the British economy was hit by high inflation and a collapse in the property sector in September 1992.
At that time, the UK has just entered into an ERM agreement, with a GBP/DEM price position of 2.95, the pair is only allowed to trade in a narrow range where the lower threshold of the range is set at 2.778. If the price falls below this level, the Bank Of England will enter the market by intervening to lift Sterling’s value.
As a result of the major events occurring on September 13, 1992, several Big Players including Soros and Goldman Sachs think that the Bank Of England would not be able to hold on to the pound forever, so they decided to attack the pound on a large scale.
The then British finance minister tried to defuse this attack by trying to raise demand for the pound through increasing interest rates twice a day. But the Bank Of England failed. by night it became clear that the finance department and the central bank were unable to lift the value of the pound causing Sterling to crash and the BoE to suffer a loss of more than £ 3 billion.
Meanwhile, Soros made a profit of more than 1 billion dollars. And since the UK left Europe, the GBPUSD price movement was also influenced by information about Brexit.
Advantage Trading GBP/USD
- One of the advantages of trading on the GBPUSD pair is that the spreads offered are usually low, this can be used for scalping strategies. However, for this strategy, you need to consult with a broker because not all brokers allow scalping.
- The second advantage is that this pair is traded by most traders all over the world, so it can be an active pair.
- Another advantage is that the GBPUSD pair has a daily average that ranges from 100-200 pips, with a wide movement that allows it to reach the target more easily.
GBP/USD Swap rate
A swap or rollover is an interest that is added or deducted on a currency trading transaction overnight. Swap fees will be deducted or added to the trading account balance for open transactions.
This cost is the difference between the overnight interest rate for the two currencies held by the Forex trader.
Swap cost is counted on GMT + 2, if there is an open position, either buy or sell past the curfew, a swap fee will be charged. If the swap is negative it will be deducted from the trading account balance, however, if the swap is positive it will be credited to the trading account balance.
To calculate the swap fee per day, you can use the formula below:
BUY pair A/B = (( Interest Rate A – Interest Rate B)% x Lot x Contract Size) / 365
SELL pair A/B = ((Interest Rate B- interest Rate A)% x Lot x Contract Size) / 365
To calculate it you have to know the interest rate of each currency, for example, you open Buy 1 lot on GBPUSD, where the UK interest rate says 0.25%, and the US interest rate is 1%.
With the formula above, the calculation is GBPUSD = ((0.25-1)% x1x100,000) / 365 = $ -2.05 per day.
Different brokers can have different policies for this swap fee, to make it easier to get information on GBPUSD swap fees you can follow the steps more quickly.
Run your MT4 platform, highlight “market watch” then search for the GBPUSD pair. After you find it then right-click your mouse, and select “specifications”.
Then a new window will appear which contains some information, you can see for “swap long” and “swap short”. This can thus help you consider whether to close the position before overnight or hold it.
GBP/USD Forex prediction
Shortly towards the end of the year, there will be an important event in the world spotlight, the American presidential election between Donald Trump and Joe Biden. This possibility will affect the GBPUSD pair, and some analysts do forecasts for this pair.
- FXstreet predicts the price in the short term weekly can reach the average forecast of 1.2937, the period of one month the average forecast is 1.2938, and the 1 quarter forecast will reach 1.3106.
Meanwhile, Dailyfx analyst predicts that USD can press GBPUSD. This is related to the conditions of Brexit and the American presidential election shortly. Furthermore, the demand for USD can increase amid market uncertainty.
While the well-known forecasting site Wallet Investor in their forecast shows GBPUSD in the next year will fall at the price level of 1.2710, but this site uses historical data to predict it and ignores fundamental issues.
GBP/USD forex chart analysis
GBPUSD showed a bearish bias in the trading session last week, with the final form is a bullish candle. This can be an indication of the weakening of the bearish momentum that has dominated since the beginning of last week.
Chart by Tradingview.
From the picture above we can see that the price is currently in the trendline area, if this support is strong then there is a possibility that this is a price reversal area, but if it can break the trendline it will allow the price to continue the decline.
EMA itself still indicates a downward trend, where the price is currently below the EMA line, and this could be a moderate resistance area.
While the RSI is at the level of 48.40 with the line pointing upwards. This can be an indication that the current trend price is trying to get back up after moving bearish last week. The point of concern for the world is the US presidential election next week.
Seeing the strength of the two current presidential candidates, Joe Biden vs Donald Trump, based on a poll conducted by several survey institutions, reported that Biden was superior to Trump. Citing from BBC.co.uk, Biden’s poll was 52% and Trump’s 43%. This survey has taken 3 days before the election.
If the results are in line with market expectations, it is possible that the USD can suppress GBP, so that the decline can occur even more strongly.
GBPUSD is a pair that many traders choose because of its high fluctuation so that the opportunity to gain profit is higher than pairs that have a low moving average.
Maybe for traders who use the carry trade strategy, this is not easy but it can still be done. This is not a pair that is suitable for positive swaps, both your sell and buy will have an impact on your position that goes through overnight with negative swaps.
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