Talking Points
- A pennant pattern on the GBP/USD daily chart points to a break to the upside.
- Moreover, the pair is well supported both by a longer-term trendline and by the 50- and 100-day moving averages.
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Bulls of GBP/USD will be encouraged by a well-defined pennant formation on the daily chart (see below), a continuation pattern that points to further strength after the pair’s climb from 1.2113 on March 14 to 1.2613 on March 27. If the formation works as it should in theory, a break to the upside above 1.2465 in a few days’ time could lead to an advance equivalent to the height of the “flagpole” – that five-big-figure advance between March 14 and March 27 – taking it to 1.2965.
Chart 1: GBP/USD Daily Timeframe (October 2016 to April 2017)
Moreover, there is plenty of support for the exchange rate at its current level. It has already held twice this week at the trendline support from that recent low on March 14, while the 50-day and 100-day moving averages both lie just below the current 1.2470 at close to 1.24.
Chart 2: GBP/USD Daily Timeframe (October 2016 to April 2017)
However, there is plenty of resistance to overcome before that medium-term target around 1.2965 is reached. Trendlines drawn from the February 2 high at 1.2716 and the February 24 high at 1.2564 come in at and just above 1.26, while the highs themselves could also cap advances near-term.
For near-term bulls, therefore, a stop just under 1.2370, the March 29 low and under the 50-day and 100-day moving averages, makes sense. For bears, a stop just over 1.26, where the March 27 high and trendline resistance come in, would limit losses.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Follow Martin on Twitter @MartinSEssex
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