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GBP/USD Technical Analysis: Big Picture Support Holds, for Now

GBP/USD Technical Analysis: Big Picture Support Holds, for Now

2017-05-31 16:32:00
James Stanley, Strategist
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Talking Points:

  • GBP/USD Technical Strategy: Long-term mixed, intermediate-term bearish, near-term bullish.
  • Cable price action broke down to re-test a key area of support that had previously functioned as resistance.
  • 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 continued strength in GBP/USD as the pair finally tested above the 1.3000 psychological area of resistance. On the under-side of price action, a rather clear support zone had popped-up around the 1.2750 psychological level; and this syncs with prior range resistance from the post-Flash crash backdrop in Cable. As the U.K. is just a week away from general elections, anxiety has begun to show as polls are indicating that Theresa May’s conservatives may end up losing seats from the venture: And this can make for an even messier ‘Brexit negotiation,’ with the decision to host early elections back-firing on the newly installed PM. As sellers took over in Cable, support showed-up at a familiar area around 1.2750; and at least for now, buyers have held the pair above prior range resistance.

GBP/USD Technical Analysis: Big Picture Support Holds, for Now

Chart prepared by James Stanley

While this bounce off of support may be attractive for continuation themes on longer-term time frames, the bigger question is one of short-term momentum. This recent bounce off of the support zone around 1.2750 has catapulted price action into the under-side of a previously bullish trend-line, which can be found by connecting the post-Breakout swing-low with the low from May 15th. This should give bulls or those utilizing short-term bullish strategies reason to pause as this resistance coincides with prior support; giving rise to the idea that we may be looking at either a) range-bound conditions or b) a corrective swing-lower.

GBP/USD Technical Analysis: Big Picture Support Holds, for Now

Chart prepared by James Stanley

For bullish approaches, or for those with a longer-term time horizon, waiting for a re-test of support could open the door to top-side swing strategies. The key here would be waiting for support to actually show around 1.2750-1.2775, as a 3rd test of a support zone usually brings diminishing marginal results unless something tangible has changed in the underlying conditions.

For those looking at shorter-term strategies, bearish reversals could be operable provided that risk is controlled. As we looked at in our last article, breaks-below the prior support level around 1.2825 could open the door to short-side setups, as bearish drive below these swing points illustrate waning bullish support that had previously driven cable to higher-highs and higher-lows. Taken with the near-term lower-low that printed earlier this morning, and those looking to execute short-term strategies could have a workable backdrop here in short Cable setups.

GBP/USD Technical Analysis: Big Picture Support Holds, for Now

Chart prepared by James Stanley

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

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