Can The British Pound Turn Around?

By: Richard_Cox

Broad trends in currency markets have been somewhat subdued for most of the year.  There are few different reasons to explain why we are seeing this type of activity but it is important to look ahead in order to determine which factors are likely to present themselves during the second half of this year.  Most of the recent activity has been centered on the Federal Reserve and monetary policy implications for the US Dollar.  But when we are looking for oversold currencies that are basing themselves for strongly bullish runs, one of the best options in the market just might be the British Pound (GBP).

Common price analysis in the GBP is often conducted in relation to the EUR, which is not surprising given the recent talks surrounding the potential ‘Brexit’ scenarios and the overall strength of the economic relationship between Great Britain and the broader Eurozone.  But when we are looking at things from a contrarian trading perspective, long-positions in currency pairs denominated in US Dollars are starting to make much more sense.  Here, we will look at some of the critical price levels that should be watched by currency traders looking for long-term positioning opportunities.

Chart View:  GBP/USD

Chart Source:  CMC Markets

In the chart above, we can see that over the last year price action in the GBP/USD has consistently managed to find support near the 1.40 handle.  We have seen some brief downside violations of this level, but any further bearish extension has failed to be meaningful.  If we view this activity from a trendline perspective, we can see that the paradigm has already started to shift and that the most probable scenario is now calling for higher prices in the currency pair.

As far as potential price targets for bullish traders, we should remain cognizant of resistance at 1.4650 as any upside violations here would confirm the positive outlook.  The next natural target from there would be psychological resistance at 1.50 as there is very little to be found in the way of historical resistance at nearby price levels.  The basing structure that is now visible on the long-term charts suggests that risk to reward is likely to be more favorable in this pair than in any of the other major trading pairs so these are all scenarios that should be watch by those trading in any asset that is associated with the value of the GBP.  This means that we could see overflow influence with assets like the FTSE 100 so it is now clear that we are trading in critical territory with respect to British assets. 

By Richard Cox

© 2016 Richard Cox - All Rights Reserved

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