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GBP/USD Technical Analysis: Slop to Chop, Direction Still Lacking

GBP/USD Technical Analysis: Slop to Chop, Direction Still Lacking

James Stanley, Senior Strategist

Talking Points:

- The British Pound continues to exhibit little discernable direction after the BoE’s rate hike.

- Sentiment is near-flat in GBP/USD, with 1.06 traders long for every one short. Click here to access our IG Client Sentiment Indicator.

- Want to see how GBP and USD are holding up to the DailyFX Forecasts? Click here for full access.

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In our last article, we looked at a congested British Pound as Cable continued in a direction-less manner near-term. As we’d advised, navigating such sloppy price action presents a distinct set of challenges for traders as prevailing trends are lacking any discernable biases to work with. As such, we’d advised awaiting a break of support (1.2982-1.3026) or resistance (1.3320-1.3350) before looking to do so. The one setup that might’ve been available in the interim was a resistance check off of 1.3216, or the 50% retracement of the August-September bullish run. This level had previously functioned as resistance, and this opened the possibility of a relatively tight stop lodged above the 1.3320-1.3350 area. That resistance showed-up on Friday, and after an early swoon to start the week, prices have moved right back towards this area.

GBP/USD Hourly: A Month’s Worth of Mean Reversion

GBP/USD Technical Analysis: Slop to Chop, Direction Still Lacking

Chart prepared by James Stanley

This continued meander of mean reversion has left GBP/USD without any discernable near-term direction. By scrolling out on the chart, we can see where there’s an intermediate-term trend still at work as the 2017 bullish trend trudges on. That trend is in question, however, as the projection of this trend-line has been seeing considerable intra-day oscillation over the past couple of weeks. This trend-line first re-engaged on the heels of the BoE rate hike; and in some form or another, buyers have continue to offer some element of support around this level.

GBP/USD Daily: 2017 Bullish Trend-Line Shaking, but Continues to Hold

GBP/USD Technical Analysis: Slop to Chop, Direction Still Lacking

Chart prepared by James Stanley

This is not the only element of support around current levels, however, and this is where the backdrop on the pair gets a bit more complicated. Within the past month worth of sloppy chop, we have a number of support and resistance levels, further hindering any indications of trend that may have shown up. For traders looking to assign a directional approach, we continue to look for breaks of longer-term support or resistance before assigning a trend-side bias. On the support side of the coin, we’re looking for a break below the support zone that runs from 1.3026-1.2982 and on the resistance side, we’re following 1.3320-1.3350.

GBP/USD Daily: Support/Resistance Break to Usher in Directional Biases

GBP/USD Technical Analysis: Slop to Chop, Direction Still Lacking

Chart prepared by James Stanley

Until Then:

Realistically, it may take us a little while for the current slop in GBP/USD to resolve. The next Super Thursday meeting isn’t until February, and we’ll probably see considerable attention paid to the U.S. and European economies as we move towards year-end. The drivers around Brexit still exist, and this could continue to stoke volatility in the pair. Traders should be careful of executing shorts off of 1.3216 as we’d looked at last week. While that resistance played rather cleanly, a revisit around the same level just a few trading days later could be setting up a trap for bears, and if we do see the U.S. Dollar continue to weaken as we’ve seen over the past couple of days, that short position could end up being quite painful.

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

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

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