GBP/USD Sell-off Slides into BoE

Sterling (GBP/USD) Technical Price Outlook: Neutral

• Sterling technical trade level update – Weekly Chart
• GBP/USD reversal off resistance 52-week moving average plunges to fresh monthly lows
• Weekly resistance 1.3529, 1.3676 (key) – support 1.3245/72 (key),1.3075

The British Pound plummeted more than 1.2% against the US Dollar this week with GBP/USD breaking to fresh monthly lows. The losses now amount to a decline of nearly 3% off the January high and while Cable may find some refuge here near-term, further losses are likely in the weeks ahead. These are the updated targets and invalidation levels that matter on the GBP/USD weekly chart. Review my latest Strategy Webinar for an in-depth breakdown of this Sterling technical setup and more.

Sterling Price Chart – GBP/USD Weekly

Chart Prepared by Michael Boutros, Technical Strategist; GBP/USD on Tradingview

Notes:In my last Sterling Technical Forecast we noted that GBP/USD had, “stretched into confluent resistance and while this breakout does threaten a larger advance, the immediate rally may be vulnerable while below 1.3746- watch the weekly close.” The high was registered that week with Sterling reversing sharply to mark a second weekly decline to fresh monthly lows. Price is now attempting to break below confluent support at the 61.8% Fibonacci retracement of the December advance at 1.3391 – looking for possible price inflection here at the median-line.

A break lower would expose a more significant support zone at 1.3245/71– a region defined by the 2020 yearly open, the 61.8% retracement of the 2018 decline and the 2021 low-week close. Weakness beyond his threshold could fuel another accelerated sell-off with the next support objective eyed beyond the 2021 low at the 61.8% extension at 1.3075. Weekly resistance now eyed at the yearly-open at 1.3529 with a breach / close above the high-week close at 1.3676 needed to validate a breakout of the broader 2021 downtrend.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom Line:A reversal off downtrend resistance and a break below the January opening-range keeps the focus on near-term support here at the median-line. From at trading standpoint, a good zone to reduce short-exposure / lower protective stops – rallies should be capped by the yearly open IF price is indeed heading lower. Keep in mind the BoE interest decision and US non-farm payrolls (NFP) are on tap next week into the monthly crossover- expect volatility. I’ll publish an updated Sterling Price Outlook once we get further clarity on the near-term GBP/USD technical trade levels.

Sterling Trader Sentiment – GBP/USD Price Chart

• A summary of IG Client Sentiment shows traders are net-long GBP/USD – the ratio stands at +1.37 (57.85% of traders are long) – typically weak bearish reading
• Long positions are 1.79% higher than yesterday and 9.62% higher from last week
• Short positions are 0.83% lower than yesterday and 29.27% lower from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias from a sentiment standpoint.

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Previous Weekly Technical Charts

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex