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Sterling Price Outlook: British Pound Sinks into Support– GBP Levels

Sterling Price Outlook: British Pound Sinks into Support– GBP Levels

2020-01-10 17:30:00
Michael Boutros, Strategist
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Sterling has been on the defensive against the US Dollar since the start of the year with GBP/USD trading lower by more than 3.7% off the 2019 highs. The decline takes price near multi-month uptrend support and we’re looking for a reaction heading into next week. These are the updated targets and invalidation levels that matter on the GBP/USD price charts. Review my latest Weekly Strategy Webinar for an in-depth breakdown of this British Pound trade setup and more.

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Sterling Price Chart – GBP/USD Daily

Sterling Price Chart - GBP/USD Daily - British Pound vs US Dollar Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; GBP/USD on Tradingview

Technical Outlook: In my latest Sterling Weekly Price Outlook we noted that we were, “looking for a larger setback towards confluence support for guidance – IF price is indeed heading higher on this stretch, losses should be limited to the 1.29-handle. Ultimately, we’re looking to fade weakness for a breach to fresh yearly highs.” GBP/USD is down more than 2% off the late-December highs with price continuing to trade within the confines of an ascending pitchfork formation extending off the October / December highs.

Sterling dropped into initial daily support yesterday at 1.3013- a break below this threshold would risk a larger setback towards broader bullish invitation at 1.2907/20 – a region defined by the 38.2% retracement of the September advance and the 61.8% extension of the December decline. Monthly open resistance stands at 1.3253 with a breach / close above 1.3284 needed to mark resumption targeting 1.3363 and the 1.35-handle.

Sterling Price Chart – GBP/USD 240min

Sterling Price Chart - GBP/USD 240min - British Pound vs US Dollar Trade Outlook - Technical Forecast

Notes: A closer look at Sterling price action shows GBP/USD holding below basic trendline resistance extending off the highs with the decline now trading just above near-term confluence support at 1.2990-1.3013 – note that the lower parallel converges on this region into the close / open of next week. A break there would expose 1.2907/20 – look for a bigger reaction there IF reached. Initial resistance stands at the highlighted trendline confluence around 1.3140s with a breach of the weekly opening-range highs shifting the focus back towards 1.3253 and the 61.8% retracement / March high-day close at 1.3281-1.3310.

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Bottom line: The Sterling pullback is trading just above multi-month uptrend support and the immediate focus is on a reaction down here. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops. Be on the lookout for downside exhaustion heading into the lower parallel for possible entries IF price is indeed heading higher.

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

Sterling Trader Sentiment – GBP/USD Price Chart

Sterling Trader Sentiment - GBP/USD Price Chart - British Pound vs US Dollar Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-long GBP/USD - the ratio stands at +1.5 (60.05% of traders are long) – bearish reading
  • Long positions are1.27% lower than yesterday and 8.96% higher from last week
  • Short positions are13.24% higher than yesterday and 2.14% lower 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 but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed GBP/USD trading bias from a sentiment standpoint.
GBP/USD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 9% -12% -2%
Weekly 19% -22% -4%
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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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

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