The British Pound is likely to encounter more volatility against the US Dollar over the coming days, after the European Parliament said that the final deadline for a Brexit deal will be this coming Sunday. The risk factors are huge for traders holding sterling long positions over the weekend, although the rewards could be tremendous if a deal is agreed.
Market sentiment is surpisingly bullish at this stage towards a coming deal being signed in time, especially if we take the GBPUSD as a barometer of risk, as the pair trades at levels not seen since May 2018.
US Dollar dynamics are clearly in play now, although the market is without doubt discounting a significant market risk-event if the United Kingdom does come crashing out the European Union without a deal on Monday.
In terms of upside potential, I think that the GBPUSD pair could rally by around four big figures if we see a Brexit deal being struck over the weekend. This would take the GBPUSD pair towards the 1.3900 to 1.4000 region, dependant ofcourse where the GBPUSD pair closes this Friday.
To the downside, I think the move lower could be even more significant. A breakout under the 1.3260 levels exposes the GBPUSD pair to a quick drop towards the 1.3000 handle. Given the prospect of a UK no-deal and the also a potential cold shoulder from the new Biden administration, sterling could be trading back in the 1.2500 to 1.2000 price range for sometime, just from the sheer uncertainty towards the UK economy.
GBPUSD Short-Term Technical Analysis
Lower time frame analysis is showing that a inverted head and shoulders pattern has formed, and remains valid while the GBPUSD pair trades above the 1.3135 support level. According to the size of the bullish reversal pattern sterling could be preparing to rally towards the 1.3900 area.
Traders that are expecting further upside in the GBPUSD pair should know that the inverted head and shoulders pattern remains activated while the the price trades above the 1.3540 level, providing a clear bullish set-up.
To the downside, a break under the 1.3260 level is needed to encourage GBPUSD bears back into the market. Traders looking for a swing sell opportunity may look around the 1.3550 to 1.3650 area as solid risk risk reward opportunity going into the weekend.
To the downside, a break under the 1.3260 level is needed to encourage GBPUSD bears back into the market. Traders looking for a swing sell opportunity may look around the 1.3650 to 1.3700 area as solid risk risk reward opportunity. A move under the 1.3135 level could really accelerate technical selling and cause the GBPUSD pair to capitulate towards the 1.2700 area.
Source by ActivTrader.
GBPUSD Medium-Term Technical Analysis
Looking at the daily time frame from an impartial viewpoint it is evident that the GBPUSD pair could start to rally into a much higher trading range if we start to push away from the 1.3600 to 1.3700 price range.
Numerous bullish inverted head and shoulders pattern can be seen on the mentioned time frame, with the smaller of the bullish reversal pattern showing the 1.4000 level as a valid, and minimum, medium-term target.
The larger pattern projects that the GBPUSD pair could test towards the 1.5000 level, although this seems unlikely on a medium-term time scale, and is probably an upside target that could develop in late 2021. The fundamentals for the UK are not very positive, so this pattern may be a alluding to further extended weakness in the greenback.
Source by ActivTrader.
Looking at the daily time frame, one more corrective drop towards the 1.2200 support area is certainly possible. The would effectively carve out a final right-hand shoulder to complete the structure of the larger inverted head and shoulders pattern.
Key support on the way to 1.2200 on the daily chart is found at the 1.2770, 1.2500, and 1.2380 levels respectively.