British Pound Price Outlook:
GBP/USD Back to 1.3000
British Pound bulls are back at work today helping to push GBP/USD up for another re-test of the vaulted 1.3000 area on the chart. A similar test in late-October fell flat as buyers dried up beyond the psychological level and this led into approximately six weeks of range-bound behavior. But, as looked at multiple times throughout this period, that range presented the interesting scenario of being able to approach mean reversion with a prior trend-side bias, and support has filled-in from zones around 1.2820 and 1.2900 over the past few weeks.
But now that price action is back to the big figure, the big question is whether bulls can break through?
GBP/USD Four-Hour Price Chart
Adding some context to the situation, the US Dollar has been in a bearish move over the past couple of days as sellers have come-in off of a big area of resistance. The 98.33-98.50 area on DXY helped to hold the highs in mid-November, arresting a bullish advance before bears re-entered the situation. That happened again late last month and sellers pounced yesterday morning on the first trading day of December. And while this does provide a bit of an explanation for that topside push in GBP/USD, it also creates a difficult backdrop to aim for continuation until the US Dollar/DXY takes out the mid-November swing-low at the familiar area of 97.70, which had previously set a double-top formation in Q4 of last year.
The Other Side of GBP/USD: USD Tests Big Level of Support
GBP/USD Strategy Near-Term
At this stage given the backdrop, bullish biases would remain as appropriate in the pair for most outlooks. The one side from which bearish scenarios could be entertained would be looking for a quick reversal off of the big figure for a retracement in the recent bullish trend. This could open the door for near-term targets around 1.2950, at which point stops can be adjusted to break-even while additional targets are set at prior support/resistance areas around 1.2900 or, perhaps even 1.2820 should the range continue.
GBP/USD Two-Hour Price Chart
On the long side, there are two manners of approach that could remain attractive in the current scenario. For breakout potential, traders can look for a forward-push beyond the October high of 1.3013, which could then be coupled with an initial target around the 1.3050 area which could similarly be matched with a break-even stop move in the search for additional topside for the remainder of the lot. For inside price action, traders can look to support potential around that prior resistance area of 1.2950 or, perhaps even a re-test of the 1.2900 zone. Should neither of those prices help to hold the low, then likely mean-reversion will come back into play with prior range support of 1.2820 becoming of interest.
GBP/USD Four-Hour Price Chart
To read more:
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— Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX