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GBP/USD Breakout Faces First Hurdle- Bullish Above November Open

GBP/USD Breakout Faces First Hurdle- Bullish Above November Open

Michael Boutros, Strategist

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GBP/USD Daily Chart

GBP/USD Price Chart - Daily Timeframe

Technical Outlook: I’ve been tracking this advance in the British Pound in the Weekly Technical Perspective for months now with Cable setting the November opening range just above slope support extending off the yearly lows. Earlier this month we highlighted that a breakout was imminent as prices continued to consolidate above this threshold.

The subsequent breach above the monthly open / opening-range highs on 9/22 validated the reversal with prices now eyeing near-term resistance targets at 1.3417 and 1.3482/95. This region is defined by the yearly high-day close and the 50% retracement of the 2016 decline – a breach / close above would be needed to mark resumption of the broader up-trend. Broader bullish invalidation now raised from 1.3020 to ~1.3155 where the 100-day moving average converges on the lower parallel.

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GBP/USD 240min Chart

GBP/USD Price Chart - 240min Timeframe

Notes: A closer look at price action shows the pair continuing to trade within the confines of a well-defined ascending channel formation with the upper parallel converging on the 61.8% retracement today at 1.3417. Note that cable is marking slight momentum divergence into these highs and while the monthly opening range break has us looking for a late-month high, we’re heading into the close tomorrow- use caution. The immediate advance may be vulnerable here but the near-term focus remains higher while above the monthly open at 1.3283.

Bottom line: I’ll favor fading weakness while within this formation with a breach above 1.3495 needed fuel the next leg higher in Cable targeting subsequent topside resistance objectives at 1.3543 and the 2017 high / Brexit gap at 1.3658/75. Keep in mind we still have the U.S. Core Personal Consumption Expenditure (PCE) and ISM Manufacturing / Employment on tap into the close of the week.

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GBP/USD IG Client Sentiment
  • A summary of IG Client Sentimentshows traders are net-short GBPUSD- the ratio stands at -1.3 (43.5% of traders are long) –weak bullish reading
  • Retail has remained net-short since Nov 21st - price has moved 0.7% higher since then
  • Long positions are 0.2% higher than yesterday and 11.2% lower from last week
  • Short positions are 7.4% lower than yesterday and 8.2% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. However, retail is less net-short than yesterday but more net-short from last week and the combination of current positioning and recent changes gives us a further mixed GBPUSD trading bias from a sentiment standpoint.

See how shifts in GBP/USD retail positioning are impacting trend- Click here to learn more about sentiment!

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Relevant Data Releases

GBP/USD Economic Calendar

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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