- GBP/USD reversal off resistance breaks below monthly opening range lows- risk remains lower
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The British Pound has fallen more than 3% off the yearly highs with the decline taking out the April opening range lows. While the broader outlook does remain constructive, near-term the risk for a pullback in price has us looking for a possible exhaustion lower down near structural support.
GBP/USD Daily Price Chart
Technical Outlook: In my last Weekly Technical Outlook we noted that Cable was approaching the 2018 highs at 1.4346 with a breach above this threshold needed to keep the broader long-bias in play. Price posted an outside-weekly reversal off this threshold before break below the objective April opening range lows yesterday. The decline also validates a break of the November slope line and leaves the risk lower while below the monthly open at 1.4024.
Note that yesterday’s close marked the fifth consecutive daily decline – three of the last five instances of such an occurrence saw a slight reprieve (a day or so) before registering a new low. That said, look for initial support along the lower parallel.
GBP/USD 240min Price Chart
Notes: A closer look at price action sees Cable trading within the confines of a near-term descending pitchfork formation extending off the March highs with this week’s decline slipping below the monthly range lows / 61.8% retracement at 1.3965. IF this break is legit, topside advances should be capped by the weekly highs / monthly open resistance at 1.4024/31. A break lower from here targets the lower parallel / 100-day moving average at 1.3854/67 with broader bullish invalidation for the multi-year uptrend at the March low-day close at 1.3775.
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Bottom line: The British pound has broken below the monthly opening range but looks like the decline may be losing some steam here near-term. From a trading standpoint, we’ll favor fading strength while below median-line of the descending pattern with the decline to ultimately offer more favorable long entries near long-term slope support.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
GBP/USD IG Client Positioning
- A summary of IG Client Sentimentshows traders are net-long GBPUSD- the ratio stands at +1.33 (57.0% of traders are long) – weak bearishreading
- Long positions are 15.2% higher than yesterday and 83.1% higher from last week
- Short positions are 0.5% lower than yesterday and 42.6% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias from a sentiment standpoint.
See how shifts in GBP/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant Data Releases
Other Setups in Play
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- Written by Michael Boutros, Currency Strategist with DailyFX
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