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Sterling Technical Price Outlook: British Pound Breakout Potential

Sterling Technical Price Outlook: British Pound Breakout Potential

2020-05-12 15:30:00
Michael Boutros, Strategist
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Sterling Technical Price Outlook: GBP/USD Trade Levels

  • Sterling technical trade level update – Daily & Intraday Charts
  • GBP/USD in price consolidation just below downtrend resistance
  • British Pound long-side remains vulnerable while below 1.2622

The British Pound is off more than 0.70% against the US Dollar since the start of the week with price continuing to contract into the April monthly range. We’re on the lookout for a breakout of this pattern for guidance with the broader risk still weighted to the downside while below a critical resistance zone just higher. These are the updated targets and invalidation levels that matter on the GBP/USD price charts. Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Cable trade setup and more.

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Sterling Price Chart – GBP/USD Daily

Sterling Price Chart - GBP/USD Daily - British Pound vs US Dollar Trade Outlook - Cable Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; GBP/USD on Tradingview

Technical Outlook: In my latest Sterling Price Outlook we noted that the GBP/USD breakout was, “approaching downtrend resistance targets and leaves the immediate advance at risk heading into 1.2710/53.” - a region defined by the 61.8% retracement of the December decline and the 2019 yearly open. Price failed just ahead of this zone last week (high registered at 1.2643) with Cable holding a contractionary range just below downtrend resistance.

We’re looking for a breakout of this consolidation zone for guidance – monthly open resistance stands at 1.2593 backed by the April high-day close at 1.2622- a breach / close above is needed to keep the focus on 1.2710/53. A downside break of this formation exposes subsequent support objectives at the 38.2% retracement at 1.2174 and the 2019 low-day close at 1.2084- look for a larger reaction there IF reached.

Sterling Price Chart – GBP/USD 120min

Sterling Price Chart - GBP/USD 120min - British Pound vs US Dollar Trade Outlook - Cable Technical Forecast

Notes: A closer look at Sterling price action shows GBP/USD trading within the confines of a descending pitchfork formation – initial resistance at the 61.8% retracement / weekly open at 1.2397/98 backed by the upper parallel / weekly opening-range high at 1.2438- a breach close above I needed to shift the focus back toward 1.2498 and the May open.

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Bottom line: Sterling remains in consolidation within the April range and we’re looking for a breakout to offer guidance. From a trading standpoint, look for topside exhaustion while within this formation with a break of the weekly range low needed to fuel a larger Cable correction. Ultimately, a larger breakdown may offer more favorable entries closer to trend support. Review my latest British Pound Weekly Price Outlook for a closer look at the longer-term GBP/USD technical trade levels.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Sterling Trader Sentiment – GBP/USD Price Chart

Sterling Trader Sentiment - GBP/USD Price Chart - British Pound vs US Dollar Trade Outlook - Cable Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-long GBP/USD - the ratio stands at +1.52 (60.25% of traders are long) – bearish reading
  • Long positions are8.53% higher than yesterday and 23.45% higher from last week
  • Short positions are10.62% higher than yesterday and 18.13% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Yet traders are less net-long than yesterday but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed GBP/USD trading bias from a sentiment standpoint.
GBP/USD BULLISH
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Change in Longs Shorts OI
Daily -1% 8% 4%
Weekly -17% 55% 11%
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Key UK / US Data Releases

Key UK / US Data Releases - GBP/USD Event Risk- Sterling Economic Calendar

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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

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