War in Ukraine led GBP/USD to sell off for a third consecutive day on Monday. The pair has dropped by c. 3.26% since the conflict in Ukraine began to trade near 1.3106 recently. No doubt that price could drop even more substantially in the coming days, but a key question is whether GBP/USD can withstand falling below or potentially altogether avoid the 1.30065 price region.
If it does, market confidence in GBP/USD could quickly be restored as the continuation of the August 2020 trend upwards would look more promising. The 1.30065 region is at the bottom of a downward flag pattern, the type associated with a bullish reversal.
Should GBP/USD fail to hold close to the 1.30065 region, the prospects of a further drop to the 1.2700 region become likely. Further below, serious support doesn’t appear until the 1.2500 level. Therefore, keep in mind that 1.30065 also acts as an important barometer of future market sentiment. Traders could be swayed further by which side GBP/USD ends up.
For the moment, however, the potential for an upside for GBP/USD should give traders food for thought that at some point, the market will view GBP/USD as cheap and that we aren't all that far off those from one of those levels. That is certainly different than having no hope of a respite in recent selling.
