The GBP/USD has increased above the 1.38 level, gaining from the risk-on sentiment that weakens the US Dollar. The hopes for an economic recovery in the world and positive US corporate earnings are still outweighing suggestions that the risk rally has been overdone. Hints should lift GBP/USD further towards the 1.40 level medium-term.
GBP/USD Strength to Continue
The GBP/USD has increased above the 1.38 level, and its trend higher, prompted by a persistently weak US Dollar, seems to be propelling the two towards the 1.40 level medium-term. However, a correction could occur before that target is achieved.
Positive US corporate earnings and hopes for a US economic recovery continue to drive the US Dollar lower despite warnings that the risk rally may now be overdone, thus benefiting currencies like Pound Sterling.
Recently, the British Pound and the Euro have marched ahead in lockstep, leaving EUR/GBP largely unchanged. GBP/JPY is also moving sideways, but GBP/AUD, GBP/NZD, and GBP/CAD have made significant gains over the last couple of weeks, showing independent Sterling strength.
The British Pound is ready to mark a fifth consecutive weekly advance, with GBP/USD showing more than 3% off the January lows. A breakout above the key technical resistance suggests more upside in the days before as Pound Sterling rallies to multi-year highs. These are the updated targets and invalidation levels that matter on the GBP/USD weekly technical chart.
Last week, GBP/USD was noted as “stalled at confluence trend resistance into the start of the year…It’s important to note the technical significance of this resistance threshold – expect a substantial acceleration in the event of a topside breach here.” Pound Sterling held this resistance zone for more than six weeks, with a breakout fueling a rally of more than 0.8% this week.
The breakout also keeps the focus higher in price with resistance objectives eyed 1.3955/97, a region defined by the 61.8% Fibonacci extension of the March 2021 advance and the 2018 high-week reversal close.
Look for a massive reaction if reached for guidance with a breach exposing the 1.43-handle. The support now is at 1.3743, backed closely by the 1.3675. Ultimately, a break in the objective yearly open at 1.3646 is needed to shift the focus lower again in Pound Sterling.
The bottom line is that a Pound Sterling breakout is underway after breaching above critical confluence resistance and keeps the GBP/USD outlook weighted to the topside near-term. From a trading perspective, you can look for downside exhaustion ahead of 1.3675 on pullbacks if the price is indeed heading higher with initial resistance objectives eyed above the 1.39-handle.
A summary of this breakdown are net-short GBP/USD – the ratio stands at 1.92 (34.19% of traders are long), typically bullish reading.
The long positions are 6.99% higher than February 10 and 17.68% lower from last week. Short positions are4.74% higher than February 10, and 32.96% are higher from last week.
The fact traders are net-short suggests GBP/USD prices may continue to rise. Traders are less net-short than yesterday but more net-short from last week. The combination of current positioning and recent changes gives us a further mixed GBP/USD trading bias from a sentiment standpoint.