Technical Bias: Bearish
- British pound is trading in a small range and likely forming a breakout pattern against the US dollar.
- Possible double top on the 4 hour chart to take the pair lower in the short term.
- GBPUSD support seen at 1.7120 and resistance ahead at 1.7180.
The British pound managed to hold gains against the US dollar yesterday, but buyers seem to be struggling to take the GBPUSD pair higher which could result in a move lower.
Importance Of Trend Line
There is a critical trend line formed on the 4 hour timeframe for the GBPUSD, which has held the downside in the pair numerous times. However, the most important point to note from the charts is that the pair is likely forming a double top pattern around the 1.7170 level, which could result in a bearish move in the short term. There is a strong support around the 1.7120, which is a confluence area of the trend line and the 50 simple moving average (SMA) on the 4 hour timeframe. So, if the pair breaks the mentioned confluence support area, then it might fall towards the 50% Fibonacci retracement level of the last move higher from the 1.6953 low to 1.7181 high, followed by the 61.8% fib level, which also coincides with the 100 SMA (4H). Moreover, if sellers take control, then a move towards the 200 SMA (4H) is also possible moving ahead.
On the other hand, if the pair fails to break the trend line and bounces, then it might re-test the recent high. Furthermore, if buyers manage to push the pair above the 1.7180 level, then it would also invalidate the double top pattern.
UK Manufacturing And Industrial Production Data
The UK industrial and manufacturing production data will be released later during the London session. The fate of the GBPUSD pair in the short term likely depends on the mentioned incoming data. Overall, as long as the pair is trading below the 1.7180 the chance of a breakdown is more compared to a break higher.
Prepared by Aayush Jindal, Chief Technical Strategist at Capital Trust Markets