The British pound reversed back towards the 1.3900 level against the US dollar last Friday capping another volatile trading week for sterling, following its early-week bearish reversal towards the 1.3740 support area.
Bears failure to crack the former weekly low, around the 1.3730 level, helped to form a bullish double-bottom pattern which helped encourage technical buyers to push the pair back towards the 1.3900 resistance area.
Aside from the double bottom, a reversal of last week’s main market theme was underway on Friday which the lower yields and a higher US dollar. The market was unable to sustain this trade and we saw US 10-year yields pushing higher by nearly 1.5 percent and the US dollar index falling.
This is a going to be the theme to watch again this week, however, due to the highly volatile summer months it is unclear whether the bond and the foreign exchange market can carve out a major trend.
On a positive note for sterling it is very encouraging the way that it was able to bounce back last week, and the lack of selling interest towards the lower end of the range. If sellers are unable to break into a new higher trading range it is possible we will see a test of the yearly high at some stage this quarter.
According to the ActivTrader Market Sentiment tool traders are still very bullish towards the GBPUSD pair, with 63 percent of traders expecting more gains in the GBUSD pair right now. The bullish skew is not so large so further upside is possible.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, the GBPUSD pair has formed a notable double-bottom price pattern. These types of patterns are hugely bullish and can cause powerful counter rallies like we saw on Friday.
According to Fibonacci extension analysis a break above the 1.3900 level exposes a potential breakout rally, which could see the GBPUSD pair advancing towards the 61.8 Fib extension, around the 1.4070 level.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame a very bullish second technical rebound from the top of a large falling price channel took place last Friday, meaning the GBPUSD pair may be headed back to the highs of the year.
The wider picture continues shows that a massive, inverted head and shoulders pattern in play across the daily and weekly time frame. Buying dips towards the 1.3800 to 1.3750 area still appears to be the best strategy.
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