British Pound Trend Points Lower But Confirmation Needed to Short
TECHNICAL FORECAST FOR THE BRITISH POUND: NEUTRAL
- British Pound down trend resumption stalled below 1.28 figure
- Near-term resistance held but bearish continuation unconfirmed
- Opportunities to enter short sought on counter-trend line break
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The British Pound found interim support in the 1.2715-75 area against its US counterpart after resuming the dominant multi-year downtrend in late April. This barrier marked former resistance at the top of a congestion range containing prices from October 2016 to April 2017.
Zooming in to the daily chart, resistance guiding the near-term down move established in early July has held up in the face of an initial challenge. Counter-trend support set from the August 15 low remains in force however, suggesting is too early to conclude that bearish resumption is at hand.
A break below this threshold confirmed on a daily closing basis would imply the next leg lower is in progress, opening the door for a challenge of initial support in the 1.2662-69 zone (August swing bottom, 38.2% Fibonacci expansion).
Alternatively, another foray to the upside that takes prices above the 38.2% Fib retracement at 1.2929 might defuse immediate downside pressure and open the door for a larger recovery. The next upside barrier in this scenario is marked by the 50% level at 1.3012.
On balance, an actionable trade setup is absent for now as the narrowing gap between immediate support and resistance makes for adverse risk/reward parameters. Still, the trend bias is firmly bearish, arguing for a short-side preference in evaluating opportunities.
Tactically speaking, that translates to waiting for confirmation on a clear-cut break of the countertrend line support to enter short. Whether the opportunity to execute occurs from here or following a larger correction upward remains to be seen.
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--- Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.