GBP/USD’s Test of Major Resistance Could Present Scalping Opportunity

Key Technical Levels

The GBP/USD is consolidating yesterday’s gains as the pair has run up against major resistance. Sterling support on the back of the new government’s planned budget cuts and the prospect that the country will maintain their AAA rating has started to wane. Markets are starting to price in the expected negative impact on growth which could lead the pair directionless as sentiment shifts. Additionally, broader markets are starting to thin as we head into the U.S. Independence Day holiday. Although, this will quiet price action it could also widen spreads and high frequency traders will want to operate in the most liquid pairs to increase their profit potential. 

The GBP/USD has been in a longer-term descending channel and the pair is currently testing the upper bound of the formation near 1.5200. The resistance trend line is also converging with the 38.2% Fibo of 1.6878-1.4230 at 1.5241presentiung a formidable barrier. The potential for a reversal exist but with lingering sterling support and the lack of focus from U.S. traders, current consolidation should continue creating an ideal scalping environment. 

Quantitative Metrics

The GBP/USD’s ATR has contracted to 175 pips which is a significant improvement from a few weeks ago but still leaves its daily volatility near the top of most traded pairs. The current two month rally has led to a widening of the Bollinger band to 929 pips which is also near the top of variance levels within the major pairs. However, the pair boasts the lowest one week implied volatility reading at 11.18 signaling that price action could quiet going forward. 

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To discuss this report or be added to the email list, contact John Rivera, Currency Analyst: jrivera@fxcm.com