GBP/USD Daily Forecast – Sterling Slips and Threatens Bullish Technical Pattern

GBP/USD Rally Capped Once Again

GBP/USD made a rally attempt at the start of the week which was capped just ahead of the 1.3000 handle. Yesterday, the pair reached a high of 1.2970 before reversing once again.

The main difference, however, is that the current decline has driven the pair to a fresh weekly low. Further, the pair trades below a previously broken trendline that would have signaled more upside, had the pair managed to stay above it.

This trendline originates back to a high posted in October. Some analysts will view the pattern as a bull flag. But either way, whichever way it is viewed, it was pointing to more gains.

A retest of a technical pattern is quite common but at this stage, the pair trades well below the trendline. Further, it had already tested the trendline on Wednesday. This leads me to believe the pattern is invalidated.

Aside from this pattern, I think it is important to recognize that there has been an overall drop in volatility in the FX markets. Specifically in the dollar pairs. Had it not been for this, I would have assumed that GBP/USD has turned bearish. Instead, I will be looking for the pair to continue trading within the broader range that has been playing out for about a month now.

Technical Analysis

GBP/USD is trading near its 20-day moving averages and this is an indicator that could cause a bit of a bounce. However, I think at this point there will be some bulls that are trapped and therefore I expect recovery rallies to be short-lived.

Later in the session, the latest manufacturing and services PMI figures will be released from the US. This could trigger some volatility, but as mentioned, I think rallies will be short-lived as bulls will see them as an opportunity to liquidate.

On a 4-hour chart, I see the first level of support at 1.2846. A break below there could see the pair return back toward range support found near 1.2800.

Bottom Line

• GBP/USD has essentially invalidated an early week bullish break. It would take a daily close above 1.2910 to change this outlook.
• The next area of support for the pair is seen at 1.2846.
• Some bulls are likely trapped at this point and therefore I expect recovery rallies will be met with sellers.