GBP/USD Daily Forecast – Sterling Breaks Consolidation and Rallies to Six-Week High

GBP/USD has broken higher from a flag pattern that had contained it since October 22. With the election just over a week away, the markets seem to like to odds of a Tories win.
Jignesh Davda

A Major Technical Break for GBP/USD

A combination of a stronger dollar and expectations for a Tories win has led to a significant technical break in GBP/USD.

The dollar fell against most of its major counterparts in the early week after US manufacturing data fell short of expectations. The ISM reported their manufacturing PMI at 48.1 in November, falling short of the expected 49.2. It was the fourth consecutive month that the industry contracted.

Polling data varied somewhat in the early week between the different polls but continues to point to a Tories lead. The latest poll shows this lead by anywhere from 9 to 15 points.

While the focus among media outlets last week was on the lead narrowing, investors were confident as the YouGov MRP polls indicated a 10 point lead. This poll is widely watched as it correctly called a hung party in 2017 and as it interviews a much larger group than the other polls.

Technical Analysis

The technical break in GBP/USD is not one to ignore. An important aspect of it is the price action that led up to the roughly six-week consolidation. The pair made strong gains and expectations among market participants will be that the pair once again rallies with momentum.

GBPUSD 4-Hour Chart

There is still a barrier from the psychological 1.3000 level. This level was responsible for capping gains in October and November. However, the bullish flag break stands to keep the pair well supported.

Dips in the pound to dollar exchange rate should be met by buyers at the breakout point which falls around 1.2950. If buyers fail to protect it, it would invalidate the setup.

The area that I’m looking at for a first target to the upside falls at 1.3072. This reflects a horizontal level that is within close proximity of the 100 and 200 weekly moving averages.

Bottom Line

  • GBP/USD has made a significant technical break and is signaling more upside.
  • The breakout point for the technical pattern falls at 1.2950. Buyers will likely defend the level to keep the breakout intact.

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