GBPUSD Technical Analysis – Wedge and Divergence

The British pound currency has continued to rise against the US dollar ahead of more strong inflation data from the United Kingdom pushed sterling towards the 1.2400 level.

The rise in sterling is not surprising as rising interest rates creates a better environment for sterling as it should mean that the British pound is more in demand

We have also seen US inflation starting to drop, which means that inflation in the UK is still outpacing the USA. Basically, this means you can use it to identify and trade with rate differentials if the BOE continues on its aggressive rate path.

The technicals surrounding the GBPUSD pair is also extremely interesting. A massive wedge pattern has also formed, while layers of negative divergence has formed.

Basically, the above hints that we could see a massive unwinding taking place. With this in mind, what out for possible termination of the current rally around current levels.

Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are still fairly neutral despite the recent sharp price drop.

With 55% of traders currently bullish, it should be noted that this current sentiment reading is not significant enough to be an extreme reading, as traders are now basically batting both ways.