GBPUSD – Massive Resistance Lies Ahead

Sterling has been the strongest performing major currency over the last month but after a strong post-election rally, it may begin to be losing a little steam against the dollar.


Cable is about to face a huge test of its longer term strength as it approaches a cluster of previous support and resistance levels and the 233-day simple moving average.

Additionally, this level marks the 50% retracement of the entire cable sell-off that started almost a year ago.
gbpusd weekly

As the pair approaches this level, both the stochastic and MACD histogram on the daily chart suggest the rally may be losing some momentum. I wouldn’t say the bearish divergence is complete at this stage but it certainly looks like that will be the case. A bearish divergence also wouldn’t guarantee that a reversal will occur now, just that it may occur soon as momentum is being lost.

As of yet, I haven’t seen an actual reversal signal and that may not happen until it reaches the 1.5780 – 1.5880 range. If I see a reversal pattern around this area, such as a double top, head and shoulders, or even a single or double candlestick formation such as shooting star or bearish engulfing pattern, I would expect to see a bounce off this level.

This could suggest that the longer term dollar rally is ready to resume,  following a month-long correction. An early sign of this could come from April 29 highs being broken, or better still 5 May lows. Below here a break of last month’s near-five year lows would provide further confirmation.

A break above the 1.5780-1.5880 region would be very bullish in my view, with the next big resistance level coming around 1.62, the 61.8% retracement of the previous move and a previous level of support and resistance.

Open Position Ratio

Historical Position Ratios

Further insight into client positions and currency strength, among many other things, can be found on the FX labs section of the OANDA website.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.