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GBP/USD Price Outlook: Pound Testing Key Resistance Amid Brexit Talks

GBP/USD Price Outlook: Pound Testing Key Resistance Amid Brexit Talks

2019-01-17 18:00:00
Michael Boutros, Technical Strategist
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The British Pound has rallied more than 3.7% against the US Dollaroff the monthly lows despite a steady stream of Brexit headlines. The advance takes price into a critical resistance zone that if broken, would shift the broader focus higher in Sterling. These are the updated targets and invalidation levels that matter on the GBP/USD charts. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

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GBP/USD Daily Price Chart

GBP/USD Daily Price Chart

Technical Outlook: In my latest GBP/USD Weekly Technical Outlook our ‘bottom line’ noted that Sterling was, “losing steam just ahead of broader down-trend resistance and leaves the immediate recovery at risk while below 1.2972.” This level is defined by the 61.8% retracement of the September decline and converges on near-term uptrend & longer-term downtrend pitchfork resistance. A breach / close above this barrier is needed to validate the breakout and suggest that a more significant low was registered earlier this month. Yearly open support rests at 1.2754 with a break below the January opening-range lows needed to mark resumption of the broader downtrend.

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GBP/USD 240min Price Chart

GBP/USD 240min Price Chart

Notes: A closer look at price action shows Sterling trading within the confines of a near-term pitchfork formation extending off the December / January lows with the upper parallel further highlighting the 1.2972 resistance zone. Interim support rests with the weekly open at 1.2851 with near-term bullish invalidation at 1.2754- weakness beyond this threshold would risk a drop towards the lower parallel with such a scenario exposing 1.2697 and 1.2616/26- an area of interest for possible exhaustion / long-entries IF reached.

A topside breach targets subsequent resistance objectives at 1.3072 and the 78.6% retracement at 1.3116. Key resistance stands with the 38.2% retracement of the 2018 decline / November high at 1.3181.

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Bottom line: The British Pound is testing long-term slope resistance with the trade outlook constructive near-term while above the yearly open. From a trading standpoint, the immediate focus is on a reaction on a move towards 1.2972 with a close above needed to keep the long-bias viable. Note that despite all the dire Brexit headlines, Cable is poised to close the fifth consecutive weekly advance- the point is, keep an eye on price action for guidance. IF price fails up at resistance, look for a break below the yearly open to expose a larger pullback in price.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

GBP/USD Trader Sentiment

GBP/USD Trader Sentiment
  • A summary of IG Client Sentiment shows traders are net-long GBP/USD - the ratio stands at +1.1 (52.3% of traders are long) – neutralreading
  • Long positions are2.2% lower than yesterday and 8.8% higher from last week
  • Short positions are 1.8% higher than yesterday and 18.6% 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 & compared with last week and the recent changes in sentiment warn that the current British Pound/ US Dollar 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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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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