Sterling Weekly Price Outlook: GBP/USD Recovery Faces Moment Of Truth

In this series, we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. The British Pound has rallied more than 3% off fresh yearly lows since the start of the year with the recovery failing this week just ahead of multi-month slope resistance. Here are the key targets & invalidation levels that matter on the GBP/USD weekly chart.

GBP/USD WEEKLY PRICE CHART

(Click on image to enlarge)

Notes: Sterling has been trading within the confines of a descending pitchfork formation extending off the 2018 highs with price rebounding sharply off confluence support into the close of the year at 1.2433/69- a region defined by the 78.6% retracement of the 2016 advance and the post-Brexit low- week close.

The advance turned just ahead of critical resistance this week at 1.2945/72 where the 61.8% retracement of the September decline, the October trendline, and the upper parallel of the pitchfork. A breach/close above this threshold is needed to validate that a more significant low was registered earlier in the month with such a scenario targeting the 38.2% retracement of the 2018 decline at 1.3181.

Bottom line: The British Pound is losing steam just ahead of broader downtrend resistance and leaves the immediate recovery at risk while below 1.2972. From a trading standpoint, the immediate threat may be lower but IF Cable has turned, losses should not surpass the low-week close at 1.2721- weakness beyond this level would expose the 2018 low-close at 1.2582 backed by 1.2433/69.

GBP/USD TRADER SENTIMENT

• A summary of IG Client Sentiment shows traders are net-short GBP/USD - the ratio stands at -1.01 (-49.8% of traders are long) – neutral reading
• Long positions are 0.2% higher than yesterday and 0.5% lower from last week
• Short positions are 7.6% higher than yesterday and 13.4% higher from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.