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. Sterling is down more than 3.3% against the US Dollar from the yearly high with price breaking below a multi-month consolidation last week. These are the updated targets and invalidation levels that matter on the GBP/USD weekly price chart.

GBP/USD WEEKLY PRICE CHART

(Click on image to enlarge)

Notes: In last month’s GBP/USD Weekly Technical Outlook we noted that the “risk remains weighted to the downside heading into the close of the month/quarter but ultimately the broader outlook remains constructive while above yearly open support at 1.2754.” A break below the 61.8% line of the ascending pitchfork formation and a multi-week consolidation last week has fueled a drop towards parallel support and we’re looking for a reaction just lower.

Slope support is eyed at ~1.2860 backed closely by 61.8% retracement at 1.2801 and the yearly open at 1.2754- a break / close below this threshold would be needed to validate resumption of the broader downtrend targeting the 2016 low-week close / 78.6% retracement at 1.2433/69. Initial resistance stands with the April open at 1.3036 backed by the 1.33-handle – a breach/close above this threshold would shift the focus back to the long-side targeting the median-line and the 2017 high-week close / 200-week moving average at ~1.35.

Bottom line: Sterling has broken a multi-week consolidation pattern with the decline now approaching broader pitchfork support. From a trading standpoint, the immediate risk is lower but we’re looking for a reaction on a stretch into structural support- a good spot to reduce short-exposure / lower protective stops - look for a reaction / possible price exhaustion there IF reached. I’ll publish an updated GBP/USD Price Outlook once we get further clarity in near-term price action.

GBP/USD TRADER SENTIMENT

• A summary of IG Client Sentiment shows traders are net-long GBP/USD - the ratio stands at +2.66 (72.7% of traders are long) – bearish reading
• traders have remained net-long since March 26th; price has moved 2.0% lower since then
• Long positions are 7.6% lower than yesterday and 10.5% higher from last week
• Short positions are 12.5% higher than yesterday and 7.5% higher from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Sterling prices may continue to fall. Traders are less net-long than yesterday but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed GBP/USD trading bias from a sentiment standpoint.