British Pound Talking Points:
- The British Pound has continued to rally, mounting above a key psychological level that had previously capped the advance in GBP/USD.
- Is there room for more? Fresh breakouts can be difficult to chase, and pullback potential remains for bullish trend strategies.
- DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.
GBP/USD to Fresh Six-Month-Highs
The feel-good theme in the British Pound continues as GBP/USD pushes up to fresh six-month-highs; and with a bit of context, this marks a huge sea-of-change in the British currency that was so downtrodden just a few months ago.
Price action in GBP/USD has scaled-above the psychologically important 1.3000 level that had previously marked the high in October. Prices have run all the way beyond the 1.3100 figure, finding a bit of resistance from 1.3117 which is the 38.2% Fibonacci retracement of the ‘Brexit move’ in the pair. This extends the breakout scenario that was investigated yesterday in GBP/USD, with prices bursting above that prior October high and continuing to rally through this morning’s trade.
GBP/USD Weekly Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
GBP/USD Backdrop
The year of 2019 has really been a tail of two trends in GBP/USD, helped along by drivers around both Brexit and the US Dollar. As skepticism around Brexit showed up in April of this year and as threats of a No-Deal Brexit permeated the backdrop worry engulfed the currency and the British Pound spent much of the next four months in varying forms of sell-off. By the time August rolled around, GBP/USD was perilously close to the 1.2000 spot and this led into a chorus of calls for parity against the US Dollar.
This is around the time I started looking for support in the pair as a couple of factors opened the door to reversal potential: GBP/USD hadn’t spent much time below the 1.2000 spot, even in the post-Brexit backdrop – and price action found support around a long-term trendline projection, taken from swing-lows set in 1985 and the 2016 ‘flash crash’ in GBP/USD.
GBP/USD Monthly Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
That trendline came into play in early-August and the rest of that month saw fairly equalized price action as buyers began to re-enter the picture. The September open saw a quick probe-lower, after which buyers made a more pronounced re-entry into the situation, helping to push a +500 pip retracement during the month.
But October is when this theme really came alive and GBP/USD pushed all the way back up to the 1.3000 level after having tested below 1.2000 the month before. A bit of optimism on the Brexit-front helped to punctuate the move and buyers remained bullish, even with the psychological level coming into play.
GBP/USD Daily Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
With that ominous level of resistance sitting overhead, buyers had their work cut out for them over the following six weeks, leading to the build of a range-formation with resistance showing just inside of the 1.3000 spot. Support, on the other hand, came in from a variety of places, and over the past few weeks there were a couple of different interesting entry setups, looking at the 1.2820 Fibonacci level or the 1.2900 confluent zone – each of which filled-in and led to another topside ramp.
GBP/USD Four-Hour Price Chart
Chart prepared by James Stanley; GBPUSD on Tradingview
At this stage, euphoria has taken over and prices have flexed all the way up to another point of potential resistance. This can be a difficult scenario to work with because clearly the motivation has been bullish and one-sided, thereby producing a challenge for fades or reversals off of this level. And given that we’re trading in some rather rarified air, there’s a lack of nearby support/resistance points to use for higher-low support or points of re-entry.
This type of scenario can be approached with the aim of patience, looking to some of those prior resistance levels as possible areas for higher-low support. The 1.3000 zone becomes an obvious area for such on the chart, as this was a clear line-in-the-sand that held into this week. If that doesn’t hold, prior resistance around 1.2950 could be utilized for support potential.
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
Forex Trading Resources
DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
