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Sterling Price Outlook: British Pound Threatens GBP/USD Breakout

Sterling Price Outlook: British Pound Threatens GBP/USD Breakout

2020-02-25 16:30:00
Michael Boutros, Strategist
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Sterling Technical Price Outlook: GBP/USD Trade Levels

  • Sterling technical trade level update – Daily & Intraday Charts
  • GBP/USD marks second failed attempt to break below 1.29-handle
  • British Pound recovery eyes downtrend resistance- breach above 1.3070 key

The British Pound rallied more 0.8% against the US Dollar off the weekly lows with Sterling now approaching multi-week downtrend resistance- we’re looking for a reaction up here. 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 Cable 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 - Cable Technical Forecast

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

Technical Outlook: In my latest Sterling Price Outlook we noted that British Pound recovery was, “approaching confluence downtrend resistance just higher and we’re looking for a reaction on a stretch towards 1.3080 for guidance.” Cable registered a high at 1.3069 before turning with decline failing a second attempt to break below the 1.29-handle. Price is once again testing pitchfork resistance around the 1.2990 pivot zone with a breach / close above needed to validate a larger turn in Sterling. Key daily support now at the yearly low-day close at 1.2880.

Sterling Price Chart – GBP/USD 120min

Sterling Price Chart - GBP/USD 120min - British Pound vs US Dollar Trade Outlook - Cable Technical Forecast

Notes: A closer look at Sterling price action shows GBP/USD trading within the confines of the descending pitchfork formation we’ve been tracking off the late-December / February highs. An embedded ascending formation may be in play here and keeps the focus higher while above 1.2894-1.2907. A close below this threshold would be needed to mark resumption with such a scenario exposing 1.2822 and the 2019 open at 1.2753.

A topside breach of the descending slope exposes subsequent confluence resistance at 1.3070/71- a region defined by numerous swing highs this month & the 61.8% retracement. This level converges on the median-line into the close of the February trade - a breach / close above would be needed to suggest a more significant low was registered last week / keep the long-bias viable. Such a scenario would keep the focus on subsequent resistance objectives at the monthly open 1.3176, the 1.32-handle and the upper parallel / yearly open at 1.3253- look for a bigger reaction there IF reached.

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Bottom line: The Sterling recovery is approaching multi-week downtrend resistance just higher and we’re looking for a reaction on a stretch towards the upper parallel for guidance. From a trading standpoint, look to reduce long-exposure / raise protective stops with a breach / close above needed to keep the long-bias in play. Look for downside exhaustion ahead of 1.29 IF price is indeed heading higher. Review my latest British Pound Weekly Price Outlook for a closer look at the longer-term GBP/USD technical trade levels.

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 Trade Outlook - Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-long GBP/USD - the ratio stands at +2.07 (67.46% of traders are long) – bearish reading
  • Long positions are1.22% lower than yesterday and 2.13% higher from last week
  • Short positions are3.01% lower than yesterday and 22.59% 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. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias from a sentiment standpoint.
GBP/USD BULLISH
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Change in Longs Shorts OI
Daily -19% -11% -16%
Weekly -19% 11% -7%
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Key UK / US Data Releases

Key UK / US Data Releases - GBP/USD Economic Calendar - Sterling Event Risk

Economic Calendar - latest economic developments and upcoming event risk.

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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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