GBP/USD Is Back At The Range Top, What's Next?

Originally published by AxiTrader

It's been 8 days in a row of up days for sterling lately. That's a move which has seen it rise from a low of 1.3983 back on April 6 to the current level at 1.4340.

That's a rise of 357 points and just a few points below the overnight low of ~1.4344 which was also the range high for 2018 back on January 25.

So the big question for traders is whether GBP/USD is on the cusp of a big break higher or rather, whether the range will hold and price reverse back inside as prices have for many assets over the past few months.

That question couldn't have been asked at a more opportune time given the raft of important data this week - including unemployment and the claimant count Tuesday, PPI, RPI, and CPI Wednesday, and retail sales Thursday.

Of course how the data prints will be a key element of the determination of whether this range breaks or not. But so too will the fortunes of the US dollar. Indeed the correlation of GBP with the US Dollar Index and euro over 90 days are -0.935 and 0.92 respectively.

Interestingly over a 30 day time horizon these correlations drop away significantly and oil comes to the fore rising from 0.52 on a 90-day time frame to 0.876 on a 30-day time frame. This and the weakening of the USD impact, in terms of correlations, suggests that the data - and notions of the impact of Brexit negotiations which has improved materially since the Skripal poisoning - take centre stage.

Any disappointment at these lofty levels - in terms of the recent range and since the fall from 150 on Brexit day back in 2016 - are thus likely to have an asymmetric impact on the GBP/USD level.

Chart

Turning to the price action now and the daily chart, while at the top of the current range suggests a break could see GBP/USD run to the top of this channel I have it in at 1.4430. Momentum is with the Pound at the moment but a failure and reinforcement of the range top here would suggest a move back to 1.4270 (my fast EMA), and 1.4245/50 (mid-Bolly Band). While price holds above these levels the uptrend remains intact.

Below them, 1.4199/1.4200 - the 38.2% retracement of the rally from April 6 looks like the tractor beam and key support.

Longer term the 50% retracement level of the post-Brexit collapse in Sterling which comes in around 1.45 is key resistance. A break would suggest a full round-trip toward 1.50.

My take? I always respect ranges unless or until they break. And after a substantial move recently the chances are traders may take this opportunity to lighten positions. My system got long on April 9 and remains that way. Though it would be natural to tighten stops materially now.

Have a great day's trading.