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Sterling Forecast: GBP/USD Breakout Imminent as Cable Contracts

Sterling Forecast: GBP/USD Breakout Imminent as Cable Contracts

Michael Boutros, Strategist

Sterling Technical Price Outlook: GBP/USD Weekly Trade Levels

  • Sterling technical trade level update – Weekly Chart
  • GBP/USD in consolidation at trend extremes- risk for deeper correction below monthly open
  • Focus is on a breakout of the 1.36 – 1.38 price range for guidance
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The British Pound marked a third consecutive weekly decline against the US Dollarthis week with GBP/USD nearly 0.5% to trade at 1.3671 ahead of the close of US trade on Friday. The decline highlights a consolidation range at trend extremes and we’re on breakout watch in the weeks ahead. These are the updated targets and invalidation levels that matter on the GBP/USD weekly chart. Review my latest Strategy Webinar for an in-depth breakdown of this Sterling technical setup and more.

Sterling Price Chart - GBP/USD Weekly

GBP/USD Chart

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

Notes:In last month’s Sterling Weekly Price Outlook we warned that GBP/USD had, “rallied back into downtrend resistance with the September opening-range set just below. From a trading standpoint, a good region to reduce long-exposure / raise protective stops –Look to the breakout for guidance with the recent rally vulnerable while below this slope.” Multiple intra-week attempts to breach this slope failed with the subsequent reversal taking Cable back into longer-term uptrend support (red). The recent decline keeps price within the embedded descending pitchfork formation we’ve been tracking for months now and the focus is on a possible inflection here in the weeks ahead.

A break / close below this week’s low is needed to mark resumption with such a scenario exposing subsequent objectives at the 2017 high-week close at 1.3494 and critical support at 1.3245 – 1.13304- a region defined by the 61.8% Fibonacci retracement off the 2018 decline, the 2020 yearly open and the 100% extension of the June decline. Initial weekly resistance stands with the upper parallel (currently ~1.38) with a close above the 2018 high-week close / 61.8% retracement at 1.3992/97 needed to shift the broader focus back to the topside in the British Pound.

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

Bottom Line:Sterling is in consolidation just below multi-month downtrend resistance with GBP/USD carving a series of lower highs and higher lows just above multi-year uptrend support. From a trading standpoint, the focus is on a breakout of the monthly range for guidance with the broader outlook still weighted to the downside while within this formation. Note that a break lower here could fuel another bout of accelerated losses- stay nimble. Look for rallies to be capped by the 1.38-handle IF price is indeed heading lower. Ultimately , a larger correction may offer more favorable opportunities closer to trend support. Review my latest Sterling Price Outlook for a closer look at the near-term GBP/USD technical trade levels.

Sterling Trader Sentiment - GBP/USD Price Chart

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  • A summary of IG Client Sentiment shows traders are net-long GBP/USD - the ratio stands at +1.80 (64.29% of traders are long) – typically bearish reading
  • Long positions are 19.87% lower than yesterday and 20.09% higher from last week
  • Short positions are23.20% higher than yesterday and 22.23% 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 less net-long than yesterday but more net-long from last week. The combination of current positioning and recent changes gives us a further mixed GBP/USD trading bias from a sentiment standpoint.

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UK / US Economic Calendar

Sterling Forecast: GBP/USD Breakout Imminent as Cable Contracts

Economic Calendar - latest economic developments and upcoming event risk.

Previous Weekly Technical Charts

--- Written by Michael Boutros, Technical 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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