GBP/USD Price Outlook: Sterling Trade Levels for Upcoming Brexit Talks

2018-10-17 17:00:00 Michael Boutros

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GBP/USD Daily Price Chart
GBP/USD 240min Price Chart
GBP/USD Trader Sentiment
Relevant GBP/USD Data Releases
Active Trade Setups

GBP/USD at risk ahead of EU/UK Brexit talks – price constructive while above monthly open
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The British Pound continues to trade within the weekly opening-range heading into the EU/UK Brexit negotiations. Here are the updated targets and invalidation levels that matter on the GBP/USD charts this week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

GBP/USD Daily Price Chart

Technical Outlook: GBP/USD has been trading within the confines of this descending pitchfork formation extending off the yearly highs – we highlighted the threat of a larger pullback in the British Pound last week as price was carving out an outside-day reversal off the 75% slope line. Note that daily RSI failed at the 60-threshold and further highlights the near-term risk for steeper losses here.

That said, the broader outlook remains weighted to the topside while above the August trendline with initial daily support eyed at the 100-day moving average (currently ~1.31) backed by the October open at 1.3031- we’re on the lookout for downside exhaustion off one of these levels. A topside breach of the monthly range highs looks to challenge more significant resistance at the confluence of the December low, the September highs and the 38.2% retracement at 1.3302/17 and the upper parallel around ~1.3360s.

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GBP/USD 240min Price Chart

Notes: A closer look at near-term price action shows Sterling holding a within a clean weekly opening-range just below the 100% extension of the monthly advance at 1.3239. A break below 1.3090 targets confluence support at 1.3031/50- an area of interest for possible long-entries IF reached. Weakness beyond this region would invalidate the monthly advance with such a scenario risking a decline back towards 1.2877-1.2905.

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Bottom line: Sterling has carved out a clear weekly opening-range and we’re looking for the break for offer further guidance. From a trading standpoint, I’ll favor fading weakness while above monthly open support with a breach above 1.3239 needed to fuel the next leg higher in price. Keep in mind there is considerable event risk on the horizon with EU-UK Brexit summit likely to dominate the headlines over the next 48 hours – tread lightly.

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GBP/USD Trader Sentiment

A summary of IG Client Sentiment shows traders are net-long GBP/USD - the ratio stands at +1.28 (51.3% of traders are long) – weak bearishreading
Traders have remained net-long since September 20th; price has moved 0.2% higher since then
Long positions are1.0% lower than yesterday and 16.2% lower from last week
Short positions are 4.5% higher than yesterday and 22.3% higher from last week
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week and the recent changes in sentiment warn that the current GBP/USD price trend may soon reverse higher despite the fact traders remain net-long.

See how shifts in GBP/USD retail positioning are impacting trend- Learn more about sentiment!

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