British Pound Breakout Throttles Higher

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Sterling has surged more than 5.4% off the yearly lows with last week’s advance marking the largest weekly rally since late-January and the largest weekly-range since the post-Brexit October 2016 low. While the broader outlook remains constructive, the immediate advance may be vulnerable as price approach near-term uptrend resistance. These are the updated targets and invalidation levels that matter on the GBP/USD price charts. Review my latestWeekly Strategy Webinar for an in-depth breakdown of this Sterling price setup and more.

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Sterling Price Chart – GBP/USD Daily

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

Technical Outlook: In my latest SterlingPrice Outlook we noted that the British Pound was, “testing BIG downtrend resistance here and the focus is on a breach of this key technical resistance confluence. From at trading standpoint, the immediate advance may be vulnerable here, but the broader focus remains higher while above 1.2278.” Sterling has continued to hold just below resistance at the 50% retracementof the yearly range at 1.2670 and while the broader outlook remains constructive, the immediate advance may be vulnerable here just below trendline resistance.

Initial support at the 1.25-handle backed by the post-Brexit low-week close at 1.2433 – price needs to hold above this threshold to keep the long-bias viable. Topside resistance objectives steady at the yearly open at 1.2754 backed by the highlighted confluence zone at 1.2818/38.

Sterling Price Chart – GBP/USD 240min

Sterling Price Chart - GBP/USD 240min - British Pound vs US Dollar Trade Outlook - Technical Forecast

Notes: A closer look at Sterling price action shows GBP/USD trading within the confines of a near-term ascending pitchfork formation extending off the September / October lows. Note that the median-line now converges on the 1.25-handle over the next few days- look for a reaction there IF reached. A break lower would risk a larger correction towards 1.2433 with bullish invalidation at 1.2389.

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Bottom line: Sterling is trading just below near-term uptrend resistance and leaves the immediate advance vulnerable. From a trading standpoint, on the lookout for topside exhaustion on a test of the upper parallel – ultimately a larger pullback may offer more favorable long-entries closer to trend support. For now, we’ll favor fading weakness on while above 1.2389. Review my latest Sterling Price Weekly Outlook for a closer look at the longer-term GBP/USD technical trading 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

  • A summary of IG Client Sentiment shows traders are net-long GBP/USD – the ratio stands at +1.27 (55.96% of traders are long) – weak bearish reading
  • Long positions are2.78% higher than yesterday and 22.63% lower from last week
  • Short positions are 9.92% lower than yesterday and 47.63% higher 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. Traders are more net-long than yesterday but less 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.

See how shifts in GBP/USD retail positioning are impacting trend- Learn more about sentiment!

Key UK / US Data Releases

UK / US Economic Calendar - GBP/USD Key Data Releases

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– Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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