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The British pound finally looks to be in recovery mode against the US dollar, following a massive bounce from the 1.3700 support level and a confirmed technical breakout above the 7,000 level in the FTSE100.
Sterling bulls appear to be extremely optimistic about the United Kingdom coming out of lockdown, and the prospects over the nation’s economy posting strong data during the summer months.
The lack of interested sellers below the 1.3700 support level last week alerted bulls that a turning point may be about to happen in the British pound currency, and the GBPUSD pair subsequently reversed towards the 1.4000 handle.
Sterling also has other tailwinds to ride. The recovery in the EURGBP pair appears to be unwinding, which had previously created serious headwinds for sterling over recent weeks as cross flows in the pair harmed the British currency.
Additionally, the US dollar index is starting to show signs of upside exhaustion after staging a classic 50 percent correction. Should we see the US dollar index turning even lower than this bodes extremely well for the GBPUSD pair.
We also see a raft of important data points from the UK economy this week, in the form of retail sales. UK jobs data came in strong earlier today, although it jobs data in the UK does remain obscured by the furlough scheme.
Recent PMI data from the United Kingdom economy probably means that the upcoming retail sales data will have strengthen since last month, which could further boost sterling.
Traders looking to enter into fresh buy positions this week as the prevailing trend across the both the short and medium-term is now bullish once again. Sterling looks like it can run well above the 1.4000 handle as long as the 1.3700 area remains defended.
According to the ActivTrader Market Sentiment tool a big change in sentiment has taken place since last week, with some 69 percent of traders remaining bearish towards the GBUSD pair. A large majority of traders remain on the wrong side of the trade right now, meaning more gains are likely.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, a head and shoulders pattern has been invalidated following numerous failures to ignite the bearish price pattern last week, around the 1.3670 level.
The 1.3890 level is the head of the bearish pattern, and a key invalidation spot to watch on the lower time frames. This area is now former key resistance turned key support on pullbacks
Simply put, a further directional move in the GBPUSD pair towards the 1.4100 level is expected in the short-term while the price trades above the 1.3890 level.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame the GBPUSD pair has staged an important trendline breakout to the upside on the price charts, following its recent move above the 1.3800 resistance level.
Traders should note that the trendline is the top of a falling price channel and is quite significant. As long as the trendline is broken then the GBPUSD pair certainly has the potential to test back towards its yearly price high above the 1.4200 level over the medium-term.
The bigger picture shows the GBPUSD pair trading above the neckline of a large, inverted head and shoulders pattern while the price trades above the 1.3550 support zone, which holds an upside target of 1,500 points.
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