GBP/USD Technical Analysis: Bullish but Nearing Resistance Barrier
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- GBP/USD Technical Strategy: Near-term price action continues moving higher in a bullish manner.
- While price action remains below the longer-term support value of 1.3500, the pair could pose continued bullish price action as additional rate-cut bets for the U.K. unwind as inflationary pressure has begun to show.
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In our last article, we looked at the potential for the British Pound to pose an extended top-side run after the Bank of England’s post-Brexit maneuvering drove the Sterling lower; exposing the economy to inflationary pressure as import prices continue to tick higher. And while this may not necessarily amount to a rate hike for a bank that just unloaded an artillery of stimulus last month, it could soften additional rate-cut bets as higher levels of inflation force the BoE’s hand away from future dovish moves.
Since that article, GBP/USD broke out of the top-side of the symmetrical wedge formation that had built-in post-Brexit, and prices have continued to trounce higher with higher-highs and higher-lows printing throughout; furthering the bullish case for the Cable.
There is but one complication with bullish strategies on the pair at the moment, and that’s the outsized thicket of resistance sitting above current price action. At 1.3480 we have the July swing-high in the pair; at 1.3500 we have the ‘Financial Collapse low’ that set swing support on the pair for more than 7-years before giving way to Brexit-driven price action earlier this summer. And just a bit above that at 1.3532 we have the post-Brexit swing-high; and this was the peak level in the pair just ahead of Mark Carney’s impromptu press conference just days after the Brexit referendum, in which he assured markets that accommodation would be coming from the Bank of England, preemptively.
Traders would likely want to move forward with bullish approaches in one of two ways: A) wait for a deeper support inflection in order to get long or B) let the batch of top-side resistance give way to confirm the pair’s bullish potential before triggering long, at which point traders can look to buy ‘higher-low’ support. For the inside approach, traders would likely want to target the zone around 1.3250, as this has a key Fibonacci retracement level as well as being a psychological level and a prior form of resistance (outlined in purple on the below chart). For traders looking to wait for more information, let the pair break above the 1.3532 level before looking to catch that ‘higher-low,’ which given current technical structure can be attractive if showing up in the zone from 1.3480-1.3500.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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