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Jignesh Davda

Sterling Rally Reasserts Bullish Outlook

The British pound advanced against its major counterparts in early trading on Friday as investors continue to see the odds of a no-deal Brexit declining. GBP/USD was further boosted by a weaker dollar as the greenback reversed on Thursday.

Yesterday’s European Central Bank meeting triggered a volatile reaction in the markets. The dollar initially advanced towards yearly highs, as the central bank delivered an aggressive stimulus package, but abruptly reversed gains.

The dollar index (DXY), which measures the greenback against a basket of the most popularly traded currencies, has erased earlier gains and is now in negative territory for the month thus far.

GBP/USD had been consolidating below a technical resistance level for most of the week but has since broken above it, reasserting the bullish trend.

The lack of market-moving headlines related to Brexit has aided the advance in Sterling and will likely to continue to do so. UK Prime Minister Boris Johnson’s recent defeats have boosted the markets view that a UK exit from the EU might materialize with a deal. Unless Johnson comes up with a new way to reassert his ‘no-deal’ proposition, the pound stands to recover further.


Technical Analysis

The break above 1.2373 has been significant considering that the level held the upside for most of the week. The prior consolidation looks like a flag pattern and thus there’s a strong bullish signal in play.

The next upside target for GBP/USD comes in at 1.2486, just ahead of the critical 1.2500 psychological handle.

GBPUSD 4-Hour Chart

Dips in the pair are likely to be bought ahead of resistance turned support at 1.2373. The horizontal level is now seen as a line in the sand for a near-term directional bias.

The British pound has gained against all of the major currencies in the early day. Further, it is on pace to post the largest gains for the week among the eight most popular currencies.

Bottom Line

  • The break above significant resistance reaffirms the bullish trend in GBP/USD.
  • The next area of interest to the upside falls at 1.2486 followed by 1.2500.
  • It will take a break below 1.2373 to change the directional bias to bearish.
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