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GBP/USD: Is the Bullish Trend Ready to Push Up to Fresh Highs?

GBP/USD: Is the Bullish Trend Ready to Push Up to Fresh Highs?

2018-04-09 19:46:00
James Stanley, Strategist

Talking Points:

- GBP/USD has put in bullish continuation after last week’s test of support around the 1.4000 level; opening the door for a re-test of two-month highs at 1.4245.

- GBP/USD remains as one of the more attractive pairs for scenarios of US Dollar weakness.

- Are you looking to improve your trading approach? Check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Want to see how retail traders are currently trading GBP/USD? Click here for GBP/USD Sentiment.

GBP/USD Bullish Trend Now More than a Year Old

The past year has seen a strong trend drive the British Pound higher, and against the US Dollar, that topside push has been rather pronounced. We came into last April trading at 1.2500, and even that was a sight better than where we were a couple of weeks prior, when GBP/USD was making a fast approach down to 1.2100. But, over the past year we’ve seen considerable US Dollar weakness and more recently, strength in the British Pound. That GBP strength has been driven by a number of factors, key of which has been rising inflation coupled with a bit of optimism on the Brexit-front. The pair continued this move of strength as we opened into 2018, setting a fresh post-Brexit high just a few weeks into the New Year. Resistance began to show at the 76.4 and 76.8% retracements of the Brexit move, and, to date, that serves as the yearly high in GBP/USD.

GBP/USD Daily Chart: Bullish Channel Develops as GBP/USD Spends Past Year Recovering

gbpusd daily chart

Chart prepared by James Stanley

Seven Week Pullback Finds Resolution in Mid-March

After those highs were set in January, GBP/USD began a retracement that would last for the next seven weeks. Prices would pull back by more than 500 pips before finally finding some element of support just above the 1.3700 level. Price action spent much of this period underneath a bearish trend-line, which we look at below. In mid-March, prices wedged above this level and soon found support at prior trend-line resistance (shown in green below). This led to a continuation of strength over the next week, with GBP/USD running up to a fresh seven-week high at 1.4245.

GBP/USD Four-Hour Chart: Bulls Return in Mid-March

gbpusd four hour chart

Chart prepared by James Stanley

Bullish Resumption Prospects

Over the past two weeks, another area of relevance has come into play, and this is the zone that runs from 1.4067 up to 1.4088. We had looked at this area as a potential element of support in late-March, and after a quick spike reversal at that level was followed by a lower-high, we looked at this same area of prices coming-in as short-term resistance last week.

Rather than chasing the move while short-term resistance was showing, we advised to look for support in the zone that runs from 1.3982-1.4000; and after a rather chaotic NFP Friday, that support came into play and GBP/USD has broken back above that area of resistance. This keeps the door open for topside strategies in the pair, and the zone that runs from 1.4067-1.4088 can now be repurposed as potential higher-low support. Support in the zone that runs from 1.4067-1.4088 opens the door for stops below last week’s swing low of 1.3964; enabling targets at the prior swing-highs of 1.4200 and 1.4245.

GBP/USD Four-Hour Chart: Support at Prior Resistance for Bullish Continuation

gbpusd four hour chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on GBP/USD? Our DailyFX Forecasts for Q1 have a section specifically for GBP/USD. We also offer a plethora of resources on our GBP/USD page, and traders can stay up with near-term positioning via our IG Client Sentiment Indicator.

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

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