The British pound currency has started to test back towards the 1.3600 level, despite a downbeat mood in the financial market. The move is suspicious, as the GBPUSD pair is usually a proxy for rising US stocks.
It’s fair to say that stocks recovered yesterday after taking a beating, and this could potentially be one of the reasons why we are seeing sterling rising. Additionally, the US dollar is easing alongside the Treasury yields, as tensions mount ahead of this week’s US inflation report, and Jerome Powell’s testimony eyed.
Additionally, the Brexit stalemate on the Northern Ireland protocol could limit the pound’s upside. I would also suggest that the technical are issuing a warning that a big reversal could take place at any time.
Huge amount of negative MACD price divergence have start to form across the lower time frames. This negative MACD price divergence has been present since at least the 1.3400 to 1.3600 price rally.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are currently very bearish towards sterling, despite the rally towards the 1.3600 level.
The current reading shows that sentiment is at 69 percent bearish at present. For me, buying sterling is still very risky, and it is probably best to stay side-lined, despite the negative bias.
In reality, strength or weakness around the 1.3600 price level and the latest move in the US dollar index after the mentioned news developments are going to be key going forward.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, technical analysis shows that huge amount of negative MACD price divergence have start to form across the lower time frames.
This negative MACD price divergence has been present since at least the 1.3400 to 1.3600 price rally. It is also possible that a sell-off towards the 1.3350 region could start to take place.
GBPUSD Medium-term Technical Analysis
According to the daily time frame, the GBPUSD pair has formed a huge head and shoulders pattern that has yet to play out to the downside. The overall bearish target is still the 1.2800 level.
The GBPUSD pair could test towards neckline resistance, around the 1.3650 area one final time before we see it finally rollover. Much above 1.3650 and the GBPUSD pair could surge.