GBPUSD defends the crucial support

Cable starts the new week on the front foot. On Monday, the price managed to climb to the highest levels since the 23rd of November.
Tomasz Wiśniewski

The optimism is a result of the latest developments from the Brexit pit, where according to Theresa May, No Brexit is more probable than the no deal option. Fundamentals are very much in line with the technical analysis and this situation is always more than welcomed by the traders on the currency market.

As I am mostly the technical trader, in this paragraph, I will focus on this type of the analysis. GBPUSD is largely influenced by the double bottom formation from December and January. This reversal formation always has a neckline and the breakout of that neckline is a trigger to go long. In our case, this neckline is the horizontal area around 1.2815 (orange). That resistance was broken on Friday and that was the first sign of the optimism. Later, broken resistance was successfully tested as a support and that proved the buy signal.

From the price action point of view, the buy signal here is very strong. Additionally, it has a great risk to reward ratio. In theory, stop-loss order should be placed below today’s lows and the take profit is on the black line connecting long-term lower highs. That gives us a potential profit being three times bigger than the potential loss. The positive sentiment stays here as long as we are above the orange line. Price dropping down below that support will create a false breakout pattern and will be a legitimate signal to go short.

This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis

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