GBP/USD is in one of those phases where the chart looks boring, but there is an ongoing story behind that which makes this pair more interesting than it superficially appears. The price is pressing up against a descending trend line on the daily chart, while at the same time leaning on a newly established support level which looks significant. Traders focused on this pair today will be waiting to see whether there is a breakout on either side which could lead to a stronger directional move. Or alternatively, whether the price doesn’t act decisively and instead continues to range and invalidate this entire structure.
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What makes the situation more interesting is that both bulls and bears have strong arguments on their respective sides.
Why Today’s GBP/USD Setup Matters
Over recent weeks GBP/USD has been trading within what still looks like a medium-term consolidation range between about $1.3150 and $1.3550, even as the price action has pressed closer to the upper end of this range. This has lasted for a long time, but we are now seeing a stronger bearish feature which looks like it will be very decisive sooner or later – the descending trend line shown within the price chart below.
In Forex, when a major currency pair like this one has been trading within a range for a relatively long time, a decisive breakout can be an exciting opportunity. The longer the range persists, the more attention you should pay, as the breakout will tend to be more explosive the longer it is awaited. However, ranges can also be great for scalpers or shorter-term traders, if they play rejections from support or resistance levels at the extremes of the range carefully.
GBP/USD Price Action
For multiple weeks, the price has been in a range, but in recent days, we have seen two strong impulsive pushes higher. This has left the price relatively near the upper end of the aforementioned range, so these are bullish signs. Adding to the bullish case is the support level at $1.3418 which held when last tested, and which looks firm as obvious “stairstep” support which was flipped from resistance – these levels tend to be more reliable than most.
On the bearish side, we see an obvious descending trend line which should have a psychological effect on the speculative market. It is also currently quite confluent with the horizontal resistance level at $1.3458. Note also that the support at $1.3418 is not very far from the round number at $1.3400 which might strengthen that level slightly.
The major question about the price action right now is whether we just saw a first technical higher low just above $1.3418. If the price now goes on to break out above $1.3458, we can probably say that we did. These would be bullish signs. The price action is currently looking bullishly impulsive, which suggests that we are about to see this breakout above $1.3458 happen.
My Take on the GBP/USD
I see the best opportunity here as likely to be on the long side following a strongly bullish hourly close above $1.3458, especially if it happens relatively early in the London session, because the price then will have plenty of room to move higher before it meets the next resistance level at $1.3519. However, bulls might want to watch out for potential resistance in the $1.3480 area which seems to have had some sell orders set up there.
The alternative scenario is that the price rejects the bearish trend line and starts to descend, but I would still not be comfortable going short unless as a scalp, because then the support at $1.3418 comes into play again. However, a decisive break below $1.3400 would be a bearish sign, and then maybe a longer-term short trade could be considered. Yet there are several support levels nearby which could make a short painful and very choppy.
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 $1.3418, $1.3389, or $1.3370.
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 $1.3459 or $1.3519.
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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