GBP/USD Rejected at Resistance- Price Constructive Above 1.2890
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- Sterling responds to confluence resistance- weakness to be viewed as opportunity
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Technical Outlook: Sterling has been trading within the confines of this ascending pitchfork formation extending off the 2016 low with the rally encountering confluence resistance last week at the median-line / 38.2% retracement at 1.3121. Interim support rests with the monthly open with our broader focus higher in the pair while above 1.2854/91. A breach of the highs targets parallel resistance extending off the April highs, which converges on the 161.8% ext. of the 2017 advance at 1.3272.
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GBP/USD 240min Timeframe
Notes: A closer look at the 240min chart highlights and embedded ascending formation we’ve been tracking off the June lows with price testing the median-line today in New York trade. From a trading standpoint, I’ll be looking for exhaustion / long-entries on a break lower with our focus higher while within this near-term formation.
A breach & retest of 1.3121 would validate the breakout with such a scenario targeting subsequent topside objectives at 1.3202 & the upper parallel / 1.3272. Added caution is warranted heading into UK Retail Sales tomorrow with the release likely to fuel increased volatility in the sterling crosses.
- A summary of IG Client Sentiment shows traders are net-short GBP/USD- the ratio stands at -1.27– weak bullish reading
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. That said, Positioning is less net-short than yesterday but more net-short from last week and the combination of current sentiment and recent changes gives us a further mixed near-term trading bias.
- Bottom line: Sentiment is coming off extremes and highlights the near-term risk to this advance in the British Pound. Ultimately, I’m looking to fade a pullback in the pair with a breach above resistance needed to fuel the next ‘leg’ higher in price.
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Relevant GBP/USD Data Releases
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- Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at firstname.lastname@example.org.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.