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The British pound is starting to recover above the 1.3700 level against the US dollar currency as rising stock markets and repeated failure in the US dollar index around the 94.50 level push traders back into riskier currencies.
Sterling has been in the doldrums for some time on the technical front, however, the recovery above the 1.3650 and finally the 1.3710 level is significant for the GBPUSD trading pair
The 1.3650 area is where sterling started to breakdown last month. It marks the bottom of a triangle, and once it broke in September, sterling collapsed towards the 1.3450 mark.
Now the GBPUSD pair is back inside the triangle, and testing above the 1.3700 handle things look much, much better on the technical side. Additionally, if we see follow through in the DXY to the downside, then sterling could really surge.
If would suggest keeping a close watch out for the 1.3650 to 1.3720 levels to define the next weekly price path for sterling, and also the 93.65 support area on the US dollar index.
According to the ActivTrader Market Sentiment tool it shows that some 59 percent of traders remain bearish towards the GBUSD pair right now. This is quite helpful to the bull case and worth watching.
Typically, when traders are overly bearish, especially retail traders then big counter rallies can start to take hold. If bearish sentiment worsens then we could really start to see the GBPUSD pair taking off higher.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, the GBPUSD pair looks like it is in good shape in the short-term after clearing all forms of notable technical resistance from the Ichimoku cloud indicator.
The GBPUSD pair needs to reach the 1.3780 area to actually confirm the structure of a large, inverted head and shoulders, which would hold a massive 500 points of upside potential and take the pair towards the 1.4400 mark.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame that the GBPUSD pair has cleared the Tenkan Sen line and the Kijun sen line, which is very good for higher prices in the medium-term.
Failure for GBPUSD bulls to defend the Tenkan Sen line and the Kijun sen line would be bad, however, I doubt that will happen. The thin layer of cloud resistance around the 1.3800 area suggests that the GBPUSD pair could really take-off to the upside if it clears this region.
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