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The British pound set a new multi-year trading high against the US dollar currency this week, with the latest price advance largely driven by broad-based weakness in the greenback rather than a strength in the British pound currency.
A new short-term bullish trend in sterling appears to be in progress, placing the 2018 trading high in focus, at 1.4377. The Brexit swing-high is far more interesting from a technical perspective, around 1.5020, which could be breached this year.
In order for the GBPUSD pair to head back towards the 1.5000 level a major decline in the US dollar index will need to take. The much-awaited breakdown in the greenback has failed to take hold, despite the index looking incredibly weak on numerous occasions.
On the technical front, the conditions for a meltdown in the US dollar index are close to taking place as bears repeatedly probe towards the worst level of the year, and bullish patterns continue to form.
This week sterling faces numerous challenges on the fundamental front, as the United States releases the May Non-farm payrolls jobs report, and the Bank of England holds its Monetary Policy Hearings. Bank of England Governor Bailey is also set to deliver a scheduled speech.
Looking at a chart of sterling right now dip-buyers are likely to be reward if the GBPUSD pair stages any pullbacks towards the 1.4100 level after the monthly jobs reports and the mentioned Bank of England events this week.
According to the ActivTrader Market Sentiment tool shows that some 54 percent of traders remain bearish towards the GBUSD pair right now. The overall sentiment skew is not that large and does not point to breakout trading conditions.
For the GBPUSD pair to advance towards the 1.5000 handle we really need to see retail traders leaning against the prevailing uptrend in significant number. Overall, major bearish sentiment towards sterling should be considered a positive as we typically look to fade retail sentiment.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, an inverted head and shoulders pattern continues to play out to the upside, following this week’s clear breakout above the 1.4200 resistance level.
According to the overall size of the typically bullish price pattern the GBPUSD pair could be headed towards the 1.4380 level over the short-term horizon.
It is noteworthy that the former yearly high is found at the 1.4240 level. This could be a good area to look for dip-buyers, or indeed under 1.4200.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame a huge, inverted head and shoulders pattern will form if the GBPUSD pair reaches the 2018 trading, which is found around the 1.4377 level.
This pattern holds a massive upside target of 3,000 points, which means the medium to long-term price path for the GBPUSD pair looks particularly positive.
Just to underscore, the GBPUSD pair could be headed towards the 1.5000 resistance level over the medium-term horizon, but much higher over the long-term. Watch out for explosive gains above the 1.4377 level.
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