In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. The British Pound is lower against the US Dollar for the third consecutive week with price down more than 3% from the January highs with the decline now approaching a critical support zone confluence at the yearly open. The move leaves the immediate short-bias vulnerable and we’re looking for a reaction in price just lower. These are the updated targets and invalidation levels that matter on the GBP/USD weekly chart. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
GBP/USD Weekly Price Chart
Notes: In last month’s GBP/USD Weekly Technical Outlook we noted that Sterling was testing key resistance at 1.2945/72 with, “a breach / close above this threshold is needed to validate that a more significant low was registered earlier in the month with such a scenario targeting the 38.2% retracement of the 2018 decline at 1.3181.”
Price registered a high at 1.3218 late-last month before reversing sharply with the subsequent decline now testing a critical support confluence at 1.2738/54 – a region defined by the 2019 open & the 61.8% retracement of the yearly range and converges on the 25%-line of the ascending pitchfork formation extending off the August / January lows. IF price is going to make a near-term recovery, this would be a good spot to watch. A break below this threshold would expose the lower parallel / 2018 low-week close at 1.2582– look for a larger reaction there IF reached.
Look for weekly resistance along the median-line (currently ~1.30) with a rally through the 52-week moving average / high-week close at 1.3195-1.3205 needed to mark resumption of the January breakout. Such a scenario would have us targeting subsequent resistance objectives at the December 2017 low at 1.33.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Bottom line: A three-week decline has taken Sterling back towards yearly open support and leaves the immediate short-bias vulnerable while above 1.2738. From a trading standpoint, a good place to reduce short-exposure / lower protective stops. We’ll be on the lookout for possible price exhaustion next week if Cable can stabilize / close above this region.
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GBP/USD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long GBP/USD – the ratio stands at +1.89 (65.4% of traders are long) – bearish reading
- Traders have remained net-long since February 4th; price has moved 1.2% lower since then
- Long positions are 0.3% higher than yesterday and 3.6% higher from last week
- Short positions are 9.3% lower than yesterday and 24.6% 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. Traders are further net-long than yesterday & last week, and the combination of current positioning& 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 US / UK Economic Data Releases
Previous Weekly Technical Charts
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex