The British pound is starting to be staging a strong recovery against the US dollar as the potential pushing back of the FED’s tapering announcing is propelling the GBPUSD pair back towards the 1.3800 handle.
Sterling dipped towards the 1.3600 support barrier last week, but more importantly, bulls were able to defend the July low, around the 1.3570 level, which created a notable double-bottom price pattern.
Double bottoms are amongst the most bullish reversal pattern according to technical analysis. As the double bottom pattern forms trades are already taking advantage of the technical phenomenon, with the pair rallying by 200 points.
Something else to note is that bulls now need to tackle the 200-day moving average, around current levels, 1.3790. The weekly candle closed under the 200-day MA for the first-time this year last week.
Should we see the 200-day surpassed, with multiple daily candles stabilizing above the important technical metric then sterling could attack towards the 1.3900 level. If this happens then a large bullish pattern will form, which would predict even more gains towards the best levels of the year.
According to the ActivTrader Market Sentiment tool some 72 percent of traders now have a bearish bias towards the GBUSD pair. This is great news for further short-term gains in sterling.
The increasing bearish sentiment skew, up my nearly 10 percent since last week, is very bullish as we do usually look to trade in the opposite direction of the retail crowd when looking for sentiment trades.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame the GBPUSD pair has formed a large, inverted head and shoulders pattern, with bulls needing to move the price back towards the 1.3900 level to activate the bullish pattern.
It is also noteworthy that a significant amount of bullish MACD price divergence is present until the 1.4000 level. At some point it is likely that the GBPUSD pair is going to heads towards the 1.4000 level as the MACD divergence reverses. Hence why I am still bullish towards the GBPUSD pair.
GBPUSD Medium-term Technical Analysis
According to the daily time frame a much larger inverted head and shoulders has been forming in the background, with the price needing to reach the 1.4400 level to officially confirm the structure of the pattern.
The pattern would be extremely large if it forms, as it can be formed from the 2018 high to the 2020 trading low. This would mean that the pattern holds nearly 3,000 points of upside potential.