British Pound recovery challenging monthly range highs; constructive above 1.2145.

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Sterling is the best performing major against the US Dollar this week with the British Pound up nearly 0.9% ahead of the close on Thursday. The recovery is now approaching pivotal resistance targets which IF invalidated, could suggest a larger recovery is underway. These are the updated targets and invalidation levels that matter on the GBP/USD price charts. Review my latestWeekly Strategy Webinar for an in-depth breakdown of this gold price setup and more.

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Sterling Price Chart - GBP/USD Daily

Chart Prepared by Michael Boutros, Technical Strategist; GBP/USD on Tradingview

Technical Outlook: In my latest Sterling Price Outlook we noted that GBP/USD was, “testing down-trend support here and leaves the immediate short-bias vulnerable into the start of next week.” Price registered a low at 1.2063 on Tuesday before posting an outside-day reversal with the subsequent advance now challenging a breach of the August opening-range highs.

A breach / close above 1.2250 keeps the focus on the May trendline / 23.6% retracement of the early range around 1.2330/38 – look for a more significant reaction the IF reached. Monthly open support steady at 1.2151 with a break / close below the low-day close at 1.2081 needed to mark resumption of the broader downtrend.

Sterling Price Chart - GBP/USD 120min

Notes: A closer look at Sterling price action shows GBP/USD trading within the confines of an ascending pitchfork formation extending off the August lows. Today’s breach above the median-line shifts the focus to the upper parallel – If price can stabilize above the 1.2250 target, look for a stretch towards subsequent resistance objectives at the trendline confluence around the 1.23-handle and 1.2327/39- a breach there is needed to suggest a more significant low may be in place. Initial support now 1.2176 with near-term bullish invalidation now raised to the weekly / monthly open at 1.2145/51.

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Bottom line: Sterling is challenging a breach of the monthly range highs / downslope resistance and we’re looking for a reaction here around 1.2250. From a trading standpoint, a good place to reduce long-exposure / raise protective stops – be on the lookout for downside exhaustion head of 1.2150 IF GBP/USD is indeed heading higher. Ultimately a close above 1.2338 is needed to suggest a larger recovery is underway. Review my latest Sterling Weekly Price Outlook for a longer-term look at the technical trading levels for GBP/USD heading.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Sterling Trader Sentiment (GBP/USD)

A summary of IG Client Sentiment shows traders are net-long GBP/USD- the ratio stands at +2.96 (74.8% of traders are long) – bearish reading

T raders have remained net-long since May 6 th ; price has moved 5.8% lower since then

Long positions are 1.7% higher than yesterday and 7.5% lower from last wee k

Short positions are 10.7% lower than yesterday and 7.4% higher from last week

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP / USD prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger Sterling -bearish contrarian trading bias from a sentiment standpoint.

See how shifts in GBP/USD retail positioning are impacting trend- Learn more about sentiment!

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- Written by Michael Boutros, Currency Strategist with DailyFX

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