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GBPUSD – Cable Seeking Bullish Confirmation

Cable is looking much more bullish since breaking though the 233-day simple moving average a couple of weeks ago and now it faces a key test of its bullishness, with the retest of that key SMA.

gbpusd daily [1]

When a big support or resistance level is broken, a key test of the quality of the break can be how well it stands up to the retest. If it holds, then the role of this level has changed, in this case that would be from a resistance level to a support. This acts as confirmation of the break and in this case gives the impression that sentiment towards the pair is much more bullish.

So far, the level has survived the first test but that doesn’t mean it won’t face another. The 4-hour chart is showing no sign that the move lower is easing up. Neither the MACD nor the stochastic is showing a loss of momentum at this stage, although the stochastic is potentially in the process of crossing in oversold territory which is a slightly bullish signal.

gbpusd 4hr [2]

I would like to see this followed by a move above oversold territory and combined with a reversal setup in price action before I become bullish again in the short term. Further confirmation would then come from a break above the descending trend line resistance, around 1.5750.

If we do see a daily close below the 233-DMA, that wouldn’t necessarily confirm that the uptrend in cable is over, by any stretch of the imagination. There is still significant support just below here around 1.5550 – historically a key level of support and resistance and the 50% retracement of the move from June’s lows to highs.

Until this is broken, the pair remains in a clear medium term uptrend and the flag formation remains valid, which is a bullish continuation pattern.

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Historical Position Rations [4]

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [8]

Senior Market Analyst, UK & EMEA at OANDA [9]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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