The British Pound is down more than 3.8% against the US Dollar from the March highs with Sterling now testing key structural support of the formation we’ve been tracking since the December lows. These are the updated targets and invalidation levels that matter on the GBP/USD charts this week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
GBP/USD Daily Price Chart
Technical Outlook: In my latest GBP/USD Weekly Price Outlook we noted that Sterling had,“broken a multi-week consolidation pattern with the decline now approaching broader pitchfork support. From a trading standpoint, the immediate risk is lower but we’re looking for a reaction on a stretch into structural support.” Price is testing this slope today and leaves the short-bias vulnerable near-term while above the lows.
A break / close below this trendline is needed to keep the focus lower with such a scenario targeting confluence support 1.2788/98 – a region defined by the 61.8% retracement of the yearly range and the 100% extension of the decline off the yearly highs. Initial resistance stands at the 100 / 200 -day moving averages at 1.2960 backed by near-term bearish invalidation at the 1.30-handle.
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GBP/USD 240min Price Chart
Notes: A closer look at price action shows Sterling trading into this longer-term slope with price loosely holding this descending channel off last week’s high. A downside break from here keeps the focus on 1.2798. Initial resistance stands with the channel backed by 1.2960 and 1.30– both levels of interest for possible exhaustion. Ultimately a topside breach of the April open at 1.3036 would be needed to mark resumption of the broader uptrend. Keep in mind we have the BoE and FOMC interest rate decisions on tap next week.
Bottom line: Sterling is testing BIG slope support here and leaves the immediate short-bias vulnerable while above today’s low. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops. Look for failure ahead of the 1.30-handle if price is indeed heading lower.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
GBP/USD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long GBP/USD- the ratio stands at +2.82 (73.8% of traders are long) – bearishreading
- Traders have remained net-long since March 26th; price has moved 2.3% lower since then
- Long positions are3.2% lower than yesterday and 3.3% lower from last week
- Short positions are 6.8% lower than yesterday and 0.7% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Sterling prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias from a sentiment standpoint.
See how shifts in GBP/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant UK / US Economic Data Releases
Active Trade Setups
– Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex