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GBP/USD Technical Analysis: A Breakout-Induced Range
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Talking Points:
GBP/USD Technical Strategy: Intermediate-term bullish, short-term range-bound.
Cable has yet to extend the rally from last week’s bullish breakout; but buyers are continuing to show some element of support at prior resistance, so this wouldn’t be a ‘direct fade’ setup, either.
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In our last article, we looked at the top-side breakout in GBP/USD after PM, Theresa May announced early general elections in the U.K., set to take place on June the 8th of this year. This was a surprise announcement that few were expecting, and within short-order of Prime Minister May making this statement, the British Pound had rallied by almost 400 pips against the U.S. Dollar. But as we warned in our last article, traders would likely want to avoid chasing the move-higher until more information presented itself.
Since then, we have seen some additional factors that would denote the potential for bullish continuation, primarily taken from the fact that ‘higher-low’ support has continued to show around that prior zone of resistance around 1.2775. But perhaps more disconcerting for bulls is the fact that price action has continued to respond around the 1.2850 level; thereby producing a range formation after last week’s burst-higher.
Chart prepared by James Stanley
Given that we have a shorter-term range showing up after a breakout, traders looking to add long exposure in GBP/USD can look to trade the range with a trend-side bias. As in, look to buy at or around support in the 1.2775 vicinity and, if price moves back-up, look to scale-out of the position as prices move closer to resistance. This can be accompanied by a break-even stop, and perhaps even leaving the final ‘scale’ of the lot open in the effort of seeking another top-side breakout with a limited-risk approach. Traders taking a bullish stance with the prospect of top-side extension would likely want to investigate stops below the 1.2750 psychological level. And if that top-side breakout doesn’t occur, then the break-even stop is protecting the position from a deeper move-lower.
Chart prepared by James Stanley
For bearish exposure – traders will likely want to wait for a definitive break back-below 1.2750 before plotting such strategies. If this takes place, 1.2706 becomes an ideal area to look for secondary support, after which ‘lower-high’ resistance could be looked for between 1.2750-1.2775.
--- Written by James Stanley, Strategist for DailyFX.com
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