Hello Forex Traders,
Today’s article will focus on the Great British Pound and its technical outlook for the rest of the month. For an overview of all of the majors, make sure to check out this link.
Last week’s inflation report certainly boosted the GBPUSD to uncharted territory. The report, statement and comments provided sufficient momentum for the Cable to break through major weekly and monthly resistances.
However, the bullish price movement had probably more influences than the report: capital is being withdrawn from emerging markets in a risk-off strategy by global investors. And apparently investors are favoring the British Pound (and somewhat the Australian Dollar which has seen price bounce) – at least according the latest “polls” (and with polls we mean price level). How does this all lign up on the charts?
MONTHLY RESISTANCE BROKEN
Last week’s candle was tremendously bullish with a close right at the candle high. Although the trading week hardly started, this week’s price action has not only broken last week’s high but the major monthly resistance point at 1.6730 (red line dotted) as well. Here are the key points:
1) Although the wedge looked bearish (purple and light purple trend lines), there is always a chance that the chart pattern breaks to the other direction. Motto: make sure to adopt your personal strategy when and where needed in any environment.
2) With the -27.2% Fibonacci target broken as well, there is no weekly or monthly resistance stopping the continuation of the GBPUSD up towards the next -61.8% Fibonacci target and resistance (solid red) for a break out trade (light green arrow).
3) This upside would then complete the previous breakout (blue arrow) of weekly resistance (purple trend line) and subsequent pullback (yellow arrow).
Let us zoom into the daily chart to view the breakout scenario from closer.
BREAK OUT CLOSE UP
The daily chart neatly shows how the concept of support and resistance works.
Price moved all the way from the bottom of support (magenta) to the top (purple) before making a massive bull flag (orange lines), which stopped at the 23.6% Fib level (green).
The subsequent break pullback 4 various times in the last 2.5 months but has now certainly made an impulsive bounce.
Does this mean that Forex traders should immediately jump into a long? No. A break of a resistance certainly does not equate to the best entry spot in most cases. If you are in a long trade, then that is great and the Fibonacci targets or S&R are great points to aim for. If you are not in a long trade, then waiting might be the best recipe at the moment.
Yes, the impulsiveness has been quite strong when looking at the angle of price action. That can be explained due to the fact that price has managed to move up a lot of pips in a matter of days.
But, waiting for bull flags on the 15 min and 60 min charts to form and then trade the subsequent breaks of those flags makes more sense. Continuation chart patterns indicate that a reversal or a bigger pullback is not so likely. It also allows for better timed entries.
What do you think of the GBPUSD? Let us know down below!
Thanks for sharing and Good Trading!
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