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British pound momentum signals further upside potential

A lot of the price direction in the GBPUSD is moved by the US dollar. Following on from the June FOMC where traders perceived the greenback to be more hawkish, the US dollar crosses all reversed their course. Now as traders are left undecided on whether the Fed can taper, raise rates or be in any way hawkish ahead of the mid-term elections, other currencies like the pound can show off their strength. The UK government and Bank of England are all sounding more bullish about the UK economy.

Forex Analysis GBPUSD

Yesterday the Bank of England monetary policy committee members were talking about their views on the current state in the UK’s economic conditions with regards to them voting for a possible rate hike. Most were of the view that the UK economy had sufficiently made progress towards warranting a rate hike, but they weren’t quite ready to pull the trigger. Inflation has picked up as has economic activity in the labor markets and GDP. The UK government took the projected rise in GDP as a sign they could afford to hike taxes to start paying for the extra services they plan to provide to the NHS and health services. With a possible rate hike from the BoE nearing, the British pound has found a bid today.

Sentiment amongst retail traders on the ActivTrader platform is balanced so there is no contrarian trade view to take against them.

With the fundamentals and sentiment neutral bullish we turn to the technical to see where opportunities may lay. On a daily chart, there is one massive draw which will become my overall target up at 1.4250, that double top chart pattern formed over a 3-month period with a lot of trading in-between. Before we get to that level, we will need the US dollar index to weaken towards the $90 price level again, as June 16th is when the GBPUSD dropped out of the consolidation zone just below the double top level.

By the end of July, the GBPUSD had swept the lows and then change trend direction which resulted in a swing high just below the 1.4000 big level. I am of the view that a stronger euro today, should push the GBP higher against the US dollar as the DXY drops. Even without the help of a higher EURUSD, there is a good chance we test up to the 1.400 even if it’s to just sweep the stops above the July swing high.

I have drawn a balance area of support which price action traded into yesterday before forming a bullish reversal candle. The Hammer Candle at support is always a good identifier of a change in market direction as it signifies buyers stepping in. Momentum is bullish currently on the daily time frame which reveals that the GBPUSD closes green often.

On the H1 chart, my preferred entry would be to wait for price action to get above an old support line which either is acting as resistance or will act as resistance. When the price is above this, we wait for a pullback to test the same line for support. If buyers once again step in, we can hang on to their coat tails and trade for the continuation higher.

The 1.3820 level is key today, as if it acts as resistance, we have to wait for a dip lower to 1.3780 as that is the swing high that broke on this hourly impulsive move. Stops would go below the 1.37250 level as a break of that would signify the hourly bullish hypothesis null and void.

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