This currency was making a firm, impulsive, and predictable rise, led higher by a symmetrical ascending price channel after gaining fuel from a failed bearish breakdown. The end of last week saw the price make a bullish breakout from that channel, and although the price movement has looked jerky and disorderly, it continues to move higher.
This currency pair is typically driven more by the US Dollar than by the British Pound, but that may be starting to change as the Pound claims the mantle of a relatively strong currency. What are the likely scenarios when the London and New York sessions bring more liquidity into this currency pair?
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Recent Breakout May Drive Higher or Fuel Rejection
After an entire year where the US Dollar, and by extension the Forex market, traded sideways with relatively low volatility, we have seen volatility increase and more direction also, making the Forex market more interesting. This is especially true in US Dollar pairs, as there was earlier more action in the Japanese Yen crosses for quite a long time.
The British Pound is in a position of trading as one of the strongest major currencies. It was strong last week and has opened well today. The US Dollar Index is falling more decisively, even though markets are still expecting a rate hike by the Fed soon. However, markets seem to have priced that in and are seeing the Dollar as a bit overbought which is helping it fall.
GBP/USD Technical & Fundamental Analysis
The British Pound has a relatively high interest rate, which is probably the main thing keeping it quite strong. The US Dollar does too, and is highly likely to hike even further soon, so both currencies have latent strength.
What is interesting is that although the move higher is now disorderly, we still see a pattern of higher lows and a bullish advancement. The price is making a higher low at about $1.3350 and earlier it made a near-double bottom at about $1.3330. These were after the breakout.
Overhead, the price action has invalidated one former resistance level and now faces a confluence of a horizontal resistance level at $1.3402, the round number at $1.3400, and a medium-term descending trend line. This area is therefore likely to act as strong resistance, giving us a potential pivotal point if the price reaches there today.
The resistance level in the DXY (US Dollar Index) at 100.88 is likely to hold today and provide a floor for this currency pair, which could be the support level at $1.3300.
My Take on GBP/USD
I think the resistant confluence overhead at $1.3400 will be decisive. A bullish breakout above that level, if strong, could send the price all the way to $1.3489, so a long trade on a breakout beyond $1.3402 could be a good opportunity. I like to see two consecutive higher hourly closes above that level with little upper wick on the second candlestick before making such a breakout entry.
The alternative scenario is if the price tests $1.3400 and fails strongly and quickly. This could be a good entry signal for a short trade targeting $1.3300 or at least $1.3350 where the most recent swing low was situated.
Finally, if the price turns first to fall to $1.3300 and makes a bullish bounce there, that could also be a good long trade entry, but this pair tends to give better signals as breakouts than as retracements.
Support & Resistance Levels
My previous GBP/USD signal on 6th July had me looking for a long trade above $1.3225, which was a good call that could have netted as much as about 70 pips.
Risk 0.75%.
Trades may only be entered prior to 5pm London time today.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.3300, $1.3264, or $1.3202.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to run.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.3400 / $1.3402, or $1.3489.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 25 pips in profit.
Take off 50% of the position as profit when the price reaches 25 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning the British Pound. Regarding the US Dollar, there will be a release of FOMC Meeting Minutes at 7pm London time
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