GBP/USD approaches key level

Sterling Likely to Remain Range-Bound

Since October GBP/USD has been trading basically
sideways. The range it has carved out is from about 1.7000 on the downside
and 1.7900 on the upside. Recently, the market has been back testing the
upper portion of that band, but there are signs Sterling will be heading back
the other way.

As the chart indicates, at the end of last week, GBP/USD made a run at near-by
resistance around 1.7800. That’s the high water mark from the last time it
rallied off the range lows. This time, the market did not get quite at
high, and yesterday’s trading pulled Sterling back quite a bit. The
hourly chart shows it was a steady decline yesterday. GBP/USD did
consolidate during the US trading session (no surprise given the holiday), but
has moved lower again this morning.

Today’s break lower, after a failed probe higher, could be the start of the
market heading back down into the broad range. There are two ways that
could be confirmed in the next day or so. The first is if the market
attempts to rally back above 1.7650 – which should be decent resistance now –
and fails. The other is if the support just below 1.7600 is broken.
Either one of those actions by GBP/USD would strongly suggest lower levels to
come and provide a good selling opportunity.

As we can see from the daily chart, there is likely to be a bit of support to
any decline in the 1.7500 area. That’s where the 20-day average is resting
and there’s a little shelf of action from a pull-back during the run from 1.7200
to 1.7800. It isn’t a major level, though, so the expectation is that if
GBP/USD does fail to rally or breaks lower in the next 24 to 48 hours, it will
give 1.7200 a try once more.

John Forman is a near 20-year veteran of trading and investing across a wide array of markets and instruments. He is author of the forthcoming book,
The Essentials of Trading: From the Basics to Building a Winning Strategy (Wiley, April 2006). His analysis and market comments have been found in the financial news media across the world and he has published dozens of articles on trading methodology and analytic technique. To learn more about John’s research and trading activities, visit the
Anduril Analytics website.