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British Pound Forecast: GBP/USD Chart Coiling Towards a Breakout

British Pound Forecast: GBP/USD Chart Coiling Towards a Breakout

2020-01-25 23:00:00
Paul Robinson, Strategist
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GBP/USD Highlights:

  • GBP/USD range continues to narrow
  • Price action contraction to lead to breakout
  • Sturdy line of support in place from November

GBP/USD range continues to narrow

Since the rise, euphoric rip, then sudden collapse following the UK general election, GBP/USD has been undergoing a contraction in price swings. It doesn’t help that general FX volatility is in the mud either. While the constricted price behavior doesn’t leave us with much to hang our hats on in the short-term, it could lead us to what may be a potentially explosive opportunity.

Price moves, then idles, then moves, then idles and so on. With a little more time, perhaps taking up the next week, GBP/USD could work its way towards a make or break point. Basically a triangle formation. The trend since the late summer has been up, which suggests we could see a continuation breakout.

However, the Dollar looks poised to gain further strength against other currencies, and if this is the case, then a broad Dollar rally could derail any hopes for Sterling to rally. But in an effort to keep it simple and focused, let’s look to the charts of Cable.

There lies a really solid line of support extending over from its beginnings in November. It has several inflection points, with the most recent pair of bounces off the line coming in the past couple of weeks. This offers a nice line-in-the-sand for traders.

Stay above support and the outlook is neutral to bullish, with would-be longs possibly using the support shelf as a spot of good risk/reward. If the line breaks, then the view will turn negative, and perhaps quickly as this threshold of support has proven to be meaningful.

The week ahead may not offer the fireworks we would like to see, but it should at the least lead us to closer to a breakout that can offer up price action we can work with.

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GBP/USD Daily Chart (price contracting)

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GBP/USD4-hr Chart (steady line of support to watch)

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---Written by Paul Robinson, Market Analyst

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