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GBP/USD Daily Forecast – British Pound Lingers Near 1.2570 Resistance

Weekly Chart Patterns Signal Caution for Bulls

The recovery in GBP/USD since last week has been notable, but is it signaling a broader turn in the pair?

I have had my eye on the weekly charts where GBP/USD posted an evening star bearish pattern after a sharp fall in the first week of July. This pattern usually suggests that bears are in control.

However, last weeks recovery has resulted in a weekly hammer print. The somewhat conflicting candlestick patterns makes me think that it is not wise to presume a significant bottom is in, at least not yet.

COT Data Shows Pound Net-Short Near a Two-Year High

The latest Commitments of Traders report revealed a fifth consecutive build of the net short held in the British Pound among futures traders. The position was reported at -73K contracts, not too far away from the 2018 record of -79.3K contracts.

If it falls below the latter figure, the net-short will be the largest since May 2017. I think it is important to point out the divergence in price between GBP/USD and fluctuations in the COT data.

In September 2018, when the position was held at -79.3K, GBP/USD traded near the psychological 1.30 handle. It can be argued that the British pound net short should be a lot larger at this stage considering the pair dropped below 1.25 last week.

Of course, the position is a reflection of how the currency is also held against currencies other than the dollar, and there are other factors at play. But I do think the British pound is not as bearish as the COT data suggests on a first glance.

At the same time, Sterling is the largest net short among the major currencies. It is also the weakest major currency in the first half of July. In fact, it is the only currency that is in the red versus the dollar. The rest have either moved in the green or have mostly pared early month losses against the greenback.

Technical Analysis

Resistance at 1.2570 has come into play once again. In Friday’s forecast, I discussed how there was a strong show of selling from the level. Despite this, the pair contained the downside and has made a run up to the level once again.

GBPUSD 4-Hour Chart
GBPUSD 4-Hour Chart

This shows underlying strength. Perhaps that’s more to do with the dollar then strength in Sterling, Nevertheless, the pair shows clear upside momentum.

The next upside hurdle I see for the pair falls a few pips above 1.26. This level has acted as support and resistance on a daily chart in the past. It also has psychological properties and it is within close proximity of the 100 moving average on a 4-Hour chart.

To the downside, I see support at the 50 moving average, currently around 1.2540. Beyond that, a hold of 1.25 will be extremely important for bulls in the week ahead.

Bottom Line

  • Resistance at 1.2570 is in play, but prior upside momentum suggests an upside breakout is in the cards.

  • The next area of interest falls at 1.2604 where there is a confluence of resistance.

  • Support for the pair is found at 1.2540 followed by 1.2500.

This article was originally posted on FX Empire

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