GBP/USD Technical Outlook: Time For a Breather

GBP/USD, BRITISH POUND – Technical Outlook:

• GBP/USD’s spectacular two-month rally could be due to breathing.
• Certainly, there are no signs of a reversal yet.
• What are the signposts to look for?

GBP / USD SHORT TERM TECHNICAL OUTLOOK – NEUTRAL

GBP/USD’s spectacular two-month rally could be due to breathing.

GBP/USD is testing a stiff barrier above the 200-day moving average for the first time since January, not too far from another major ceiling at the August high of 1.2300. It was last decisively above the long-term moving average in 2021. Therefore, a break above the convergence barrier will have implications for the medium-term outlook. In recent weeks, the probability that the downtrend of GBP / USD has ‘capitulated’ has increased – first highlighted in October with a follow-up last weekend.

GBP/USD Daily Chart

Chart Created With TradingView

For the time being, the chances are that that cable could soon run its course for now. Granted, there are no signs of a reversal on intraday and higher time frame charts. However, on intraday charts, there are indications of fatigue – negative divergence on 180-minute and 240-minute charts (rising price associated with a fall / stop of momentum).

By itself, the formation of a negative divergence is not enough to ensure a reversal unless accompanied by a price reversal. In this regard, so far GBP/USD continues to make higher highs on a daily basis, implying that the path of least resistance remains up.

GBP/USD 180 minute chart

Chart Created With TradingView

At the very least, the pair must first stop making new highs. Once it stops making new highs, the focus would shift to immediate support at the November 18, 1.1950 high. A decisive break below 1.1950 would be the first sign that cracks in the rally are emerging, opening the door to the November 17 low of 1.1760. A break of 1.1760 would confirm that the short-term upside pressure has faded.

— Written by Manish Jaradi, Strategist for DailyFX.com