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GBP/USD Technical Analysis: Drop After the Pop, Is the Bullish Move Over?

GBP/USD Technical Analysis: Drop After the Pop, Is the Bullish Move Over?

2017-01-18 18:15:00
James Stanley, Strategist
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Talking Points:

  • GBP/USD Technical Strategy: Near-term price action showing bullish characteristics,, Long-Term still bearish.
  • Theresa May’s ‘Brexit speech’ propelled Sterling-higher; but already we’re seeing retracement. Does this move have any element of staying power?
  • If you’re looking for trading ideas, check out our Trading Guides. They’re free and updated for Q1, 2017. If you’re looking for ideas more short-term in nature, please check out our Speculative Sentiment Index Indicator (SSI).

In our last article, we looked at the continued bearish state in GBP/USD as the pair traded very near the support zone that had developed just after the October flash crash in GBP. While very little was bullish about Cable at the time, the fact that sellers had been previously unable to break significantly below the psychological support zone of 1.2000 was at least somewhat worrisome for bears as the prospect of the Cable having ‘bottomed out’ was a very realistic possibility.

Since then, we’ve seen what many have classified as a short-squeeze on the pair after Theresa May’s Brexit speech yesterday. GBP/USD had moved down to test psychological support shortly after gapping-lower to start the week; but after that support test, the pair rocketed-higher after Theresa May’s Brexit speech gave hope that Brexit may not be as ‘hard’ as what many had feared.

Whether or not this was the start of a fresh bullish trend or short-squeeze retracement from a market caught off-guard has yet to be seen. Price action would need to confirm this bullish formation by setting a higher-low before traders may be able to move forward with bullish trend-continuation prospects.

Just underneath current price action is an opportune zone for such a higher-low to develop between the levels of 1.2201-1.2261. This zone had offered resistance in GBP/USD to close last week, just ahead of the gap-lower on Sunday that ended up testing the 1.2000 handle. This area also has multiple Fibonacci retracements, including the 38 and 50% Fibonacci retracements from the most recent Theresa May-inspired major move. If support can develop at this prior zone of resistance, the door is opened to bullish-continuation strategies. If this support does not hold, traders will likely want to question the sustainability of a further bullish move.

GBP/USD Technical Analysis: Drop After the Pop, Is the Bullish Move Over?

Chart prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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