GBP/USD Daily Forecast – Sterling Eyes 1.30 Following Bullish Technical Break

GBP/USD advanced in early trading on Monday to take out a declining trendline that extends back to a high posted in October. The bullish break sets a positive tone with a likely first target of 1.3000.
Jignesh Davda

GBP/USD Makes a Bullish Break, What’s Next?

Sterling is leading the major currencies in early day trading in terms of gains and has made a significant technical break against the dollar.

Specifically, the pair has rallied above a declining trendline that originates from a high posted three weeks ago. This is typically a bullish continuation pattern and suggests the pair will resume higher, in a similar fashion that it did around the middle of October.

But I have a hard time seeing the pair rally in such a manner. The reason being is that there were a lot of political drivers last month that do not seem to be as pressing anymore.

Even if there are further developments at this stage that make a smooth exit from the EU more likely in January, there is still a lot that can happen between now and then.

Further, as the Bank of England recently pointed out, there are downside risks that have emerged once again after Brexit was delayed for a third time in October.

For that reason, I can see GBP/USD benefiting if the dollar weakness we are seeing today ends up turning into a sustained trend. But beyond that, I don’t think it is very likely that we see a momentum-driven rally in the pair.

Technical Analysis

To be clear, the near-term price action is pointing to more upside and it is important to respect that. I think a first target is likely going to be 1.3000. The psychological properties of it may have this level acting as a magnet for near-term price action.

GBPUSD 4-Hour Chart

We could see the pair rally beyond that, over a longer time period, but I see some fairly major resistance at 1.3072. This is a horizontal level on a weekly chart and the 200-week moving average falls near it to create a confluence.

In the near-term, dips towards the broken declining trendline should be supported to keep the current upward momentum intact. The trendline falls roughly around 1.2925.

Bottom Line

  • GBP/USD has made an upward break above a three-week declining trendline to signal a bullish continuation.
  • The next hurdle falls at 1.3000
  • Dips towards the trendline, currently around 1.2925, should be bought to maintain the bullish breakout.
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