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GBP/USD Technical Analysis: Range Break into a Bull Flag

GBP/USD Technical Analysis: Range Break into a Bull Flag

James Stanley, Senior Strategist

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Talking Points:

  • GBP/USD Technical Strategy: Intermediate-term bullish, near-term congested.
  • Cable posed a top-side breakout of the prior range, but bulls were tempered shy of the vaulted 1.3000-figure.
  • 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 IG Client Sentiment.

In our last article, we looked at the range that had developed in GBP/USD after the aggressive top-side breakout, triggered by PM Theresa May’s surprise announcement of early general elections. And this driver is key – as this happened just two days after the first round of French elections. After market open following the first round of French elections, the risk trade saw a significant shot-higher. Meanwhile, GBP/USD meandered between 1.2500 and 1.2593 but saw no major moves until Theresa May’s surprise announcement the following day.

But after that announcement, price action climbed by almost 400 pips as the six-month prior range yielded to surging prices. As we had written at the time, at least a portion of that move was likely driven by short-cover as bears got squeezed with prices running continuously-higher. That range-bound formation held for a little over a week until bulls were finally able to re-take control; but that bullish move was moderated well-ahead of the vaulted psychological level at 1.3000. Since then, a bearish channel has developed, giving us a bull flag formation, as shown below.

GBP/USD Technical Analysis: Range Break into a Bull Flag

Chart prepared by James Stanley

Given the pair’s inability to set a high above 1.3000 and also given the near-term lower-lows that have begun to show-up with that bull flag formation, and bulls will likely want some additional confirmation before looking to add exposure. This can be done in two ways: by either a) waiting for a longer-term support level to show-up at which point buyer support could open the door to top-side entries with controlled risk. Or by b) letting price action break-above the ‘lower-high’ that substantiates the resistance trend-line of the bull flag, at which point that price could be re-assigned as ‘higher-low’ support with targets set towards 1.3000. We discussed the second methodology earlier in the week in the article entitled, How to Use Price Action to Trade New Trends.

For those looking to trade for trend-continuation on a longer-term basis, the zone between 1.2750-1.2775 is an ideal area to watch for support to show. This is the approximate area of where resistance was during the six months of range-bound price action before the Theresa May-inspired breakout. Should buyer support show-up in this area, the setup could allow for concentrated risk with bullish continuation strategies.

GBP/USD Technical Analysis: Range Break into a Bull Flag

Chart prepared by James Stanley

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

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Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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