ATFX Market Analysis

Learn why GBP/USD stalemate might force an aggressive 215 pips move

ATFX
Publish date: Tue, 23 Mar 2021, 12:36 PM
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The lull in GBP/USD continues to dominate, and if it lasts this whole week, GBPUSD would have been trading sideways for a full month. From a trend-following perspective, the lull is both good and bad. 
 
It is bad because trend-following strategies lose money in these conditions. But it is good because the longer the price remains trapped in a range, the stronger tends the reaction be when a trend finally forms, allowing trend-followers to make strong gains. 
 
The levels I am watching are the March 1, 3, 12, and 18 highs at 1.4007, and the 1.3792 level, the price bounced from the latter level on March 5 and 8, and 16. The difference between 1.4007 and 1.3792 is 215 pips. 
 
As the consolidation over the last three weeks is in the form of a rectangle pattern, a break to the upper level of the pattern suggests that the price might be able to reach 1.4222, whilst a break to the lower level at 1.3792 suggests the price might be able to reach 1.3577. The trading pattern itself is neutral, meaning that the price might break either way. 
 
However, if we look at the general positioning on the futures markets, then we see a trend change, as few and fewer are bearish the USD. The less bearish view on the USD was linked to the high in GBP/USD and EUR/USD earlier this month.  Given that the USD was the most oversold in 11 years, I think their outlook remains upwards for the USD, and hence downwards in GBPUSD. What is your take on GBPUSD? Interact with Alejandro Zambrano via Twitter.
 
GBP/USD Six-hour Chart


 

Written by Alejandro Zambrano, ATFX Global Chief Market Strategist

 

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