This currency pair is continuing to consolidate and has been doing so for a while. It could be that we are getting some more decisive catalysts this week, with a MoU between the USA and Iran set for signing Friday, UK inflation due tomorrow, and the US Federal Reserve’s policy meeting scheduled for tomorrow. However, the anticipation of these drivers has not yet disrupted the prevailing zone of consolidation.
No consolidation lasts forever, so the best way forward is to define it and ask what technical or fundamental events might bring it to an end, and how to recognise when that is starting to happen.
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Drivers May Break the Consolidation Pattern
We are seeing much more life come into the Forex market. Of the factors I mentioned above, it is only the Iran deal that is practically taken as given. This news has led to a strong fall in the price of crude oil which should lessen inflationary pressures, and that in turn could be expected to weaken the US Dollar. However, this has not happened – stock markets are responding meaningfully to the MoU, but currencies are not really.
Following that, the next things to watch are UK CPI data, which if higher than 3% will probably give the Pound a tailwind, and what the Fed says at its policy meeting later tomorrow – that could certainly impact the greenback.
After last week’s very low volatility and the consolidation pattern here persisting, we could be due a major breakout, or breakdown as several drivers come to the fore.
GBP/USD Technical Analysis
The dominant features in the price chart below are, firstly, the medium-term consolidation chart pattern between $1.3300 and $1.3500 which has persisted for about one month; secondly, the symmetrical ascending price channel which has been pushing the price higher for about one week. The symmetry is usually a sign of reliability. With increased risk-on sentiment in the market, a move higher is supported, and it is confirmed technically with the higher low printing a new support level at $1.3391.
Clearly, the picture looks more bullish than bearish, although there is a horizontal resistance level just overhead at $1.3422. I think this is likely to be today’s pivotal point as it should get tested. A bullish breakout beyond this level could then trigger an advance to the $1.3500 area which is a medium-term high where bulls will face a real test.
The line of least resistance is upwards.
My Take on GBP/USD
I think the best approach here will be to wait for the price to conclusive break above the resistance level at $1.3422, and then to look to enter a long trade initially targeting $1.3490 / $1.3500. My preferred method is to see two consecutive higher hourly closes above the resistance level, with no significant upper wick on the second candlestick. The reward to risk ratio also must be attractive – if the trigger candlestick is too big, it could make it an unattractive trade.
Anyone looking for this trade should hope for a strong UK inflation print and a dovish tilt by the Fed. If that happens, the take profit target ultimately could be even higher than $1.3500.
This currency pair tends to trade better on the breakout than on the pull back.
Support & Resistance Levels
My previous GBP/USD signal on 11th June showed I was correct to see the bearish reversal at $1.3387 as bearish, with a breakdown below the triangle more likely
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 $1.3391, $1.3368, or $1.3352.
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 $1.3419 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 either the British Pound or the US Dollar
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