This currency pair is continuing to consolidate and has been doing so for a while. It looked as if we might get some more decisive catalysts this week, with a more bellicose American approach to its standoff with Iran and the release of US CPI data yesterday. However, neither of these events proved to be directionally decisive at all for the US Dollar, and by extension, this currency pair.
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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Limits are Emerging to the Consolidation Pattern
Without wanting to get technical yet, the reasons why it is timely to be watching this currency pair right now are twofold. Firstly, a technical pattern is emerging which defines the consolidation precisely and which will probably provide a benchmark to determine when a breakout is happening. Secondly, the US Dollar Index is consolidating bullishly just below its 1-month high, and it might be close to either breaking out or reversing, which would drive the price of this currency pair.
A further emerging difference is that President Trump seems to have changing his policy on Iran to being more confrontation and less patient in pursuit of a deal. This matters to the Forex market because risk-off sentiment tends to boost the Dollar, and higher crude oil prices do too as it feeds into inflation. The military action is not necessarily going to lead to strong risk-off sentiment or even any meaningful increase in crude oil prices, but it might.
GBP/USD Technical Analysis
The dominant feature in the price chart below is the narrowing triangle, which is suggestive not only of consolidation, but which can indicate a breakout when the price crosses one of the two trend lines which make up the triangle. When confluent with a clear horizontal support or resistance level, these trend lines can be excellent indicators for price direction.
The other thing most worthy of note is the fact that the price has slowly but surely been moving lower over the past few weeks. This has been driven more by the US Dollar than by the British Pound. There is not much of interest to say about the Pound right now.
The lower trend line of the triangle is confluent with both a horizontal support level at $1.3351, which is also confluent with the half number at $1.3350. This level is what stands out and a move lower would be in line with the trend and with the more risk-off sentiment in the market right now following the re-escalation in Iran, so I think it could be today’s pivotal point. The fact that the price has just rejected the resistance level at $1.3387 also suggests bearishness.
The line of least resistance is downwards.
My Take on GBP/USD
I think the best approach here will be to wait for the price to reach one of the trend lines making up the narrowing triangle which is drawn within the price chart above. It does look likely that the price will have to break out today, or at least very soon. This currency pair often responds quite predictably to triangle chart pattern breakouts. I see a bearish breakdown as more likely.
The problem for breakout traders is that the support and resistance levels are quite evenly balanced and set beyond the breakout points, so I would not classify this as an especially good trade set up.
Support & Resistance Levels
My previous GBP/USD signal on 9th June gave a profitable short trade from the bearish reversal in the $1.3409 area.
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 $1.3351 or $1.3332.
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 $1.3387 or $1.3411 or $1.3424.
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 PPI data at 1:30pm.
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