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The British pound has been staging a solid recovery against the US dollar, as the greenback comes back under pressure on the foreign exchange market in the aftermath of the FED’s Jackson Hole statement.
Sterling traders now look to super Friday as the upside momentum above the GBPUSD pairs 200-day moving average starts to occur ahead the UK economy releases PMI services data and the US reveal key monthly jobs and manufacturing data.
With the FED being data dependant, this week’s US data points are going to have a big impact on sterling. It is also noteworthy that the service sector makes up nearly 80 percent of UK GDP.
Should we see the 200-day surpassed with conviction after the mentioned event bulls are likely to test towards the 1.3900 benchmark level. If a sell-off takes place then we could see a test towards the August trading low, which sets up the possibility of a triple-bottom pattern forming.
Triple bottoms are amongst the most bullish reversal pattern according to technical analysis. This pattern would form if the August and July lows hold firm. Buying close to the 1.3650 level could provide a huge buying opportunity this week if a sell-off did take hold.
According to the ActivTrader Market Sentiment tool some 44 percent of traders now have a bearish bias towards the GBUSD pair. This of course means that 56 percent of traders are bullish.
There is no big sentiment skew, so it hard to take a stand or find a crowd based on sentiment. However, if bullish sentiment continues to increase it could be a warning sign that traders are becoming too bullish.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame the GBPUSD pair could formed a large, inverted head and shoulders pattern, if bulls move the price back towards the 1.3900 level over the coming days and weeks.
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, although I do think some two-way price volatility is still possible in the short-term.
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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.
In the meantime, bulls really do need to take out the 200-day moving average to confirm the return of the medium-term bullish bias. Additionally, we may need to see the price testing close to the August low for bulls to find a low risk buy trade.
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