We have reached an interesting moment for the GBP/USD currency pair where the bullish case has become increasingly convincing for several reasons. Two immediate factors include a relatively high but not unexpected UK CPI (inflation) print this morning just before the London session got underway, and the continuing bullish technicals concerning both a convincing ascending price channel and a crucial resistance level looking shaky. The generally weak and declining US Dollar is another factor that stands out.
The GBP/USD currency pair is certainly going to be in the focus of Forex analysts today.
Strong UK Inflation, Risk of Fed Hawkish Tilt Later
There was a release of UK CPI (inflation) data earlier today which showed an increase in the annualized rate from 2.6% to 2.9%. However, this was entirely expected and so had no immediate effect on the British Pound. Yet this has removed the scenario of lower than expected UK inflation, which arguably clears the way for a bullish move by the Pound.
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The US Dollar is generally weak as recent lower than expected US growth data has sent Fed expectations towards a more dovish tilt. The US Dollar Index has continued to fall in recent hours, continuing its medium term trend. This also supports a move upwards by GBP/USD, but there is a risk that the FOMC minutes which will be released later towards the end of today’s New York session might show a hawkish voting bloc emerging, and if this does turn out to be true, it could boost the US Dollar.
Ascending Channel, Break Above 1.3550 Bullish Indicators
There are several major technical factors pointing to a likelihood of higher prices.
Firstly, there is an ascending and symmetrical price channel which has held for approximately three weeks, as shown by the applied linear regression analysis within the hourly price chart below. Channels of this nature and scope tend to be relatively reliable.
Secondly, there is a longer-term bullish trend, adding weight to the bullish short-term trend.
Thirdly, we see a sequence of higher lows for almost one month now, and a nice bullish base formed in recent hours at about $1.3525.
The recent break and hold above the big round number at $1.3500 also enhanced the bullish picture.
Another noteworthy technical element is that the price now has room to rise all the way to the next resistance level at $1.3653.
The only bearish technical factor visible is the fact that the price has not yet exceeded its recent high at $1.3572 made last Monday.
GBP/USD H1 Price Chart
My Take on the GBP/USD
I see the best opportunity here as likely to be on the long side, even if we get a short-term dip even to the $1.3525 area. Buying a dip relatively early in the London session and trying to hold into the New York session seems likely to be the best trade opportunity here today.
Support & Resistance Levels
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 $1.3525, $1.3500, or $1.3478.
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 Idea
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.3653.
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.
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