GBP/USD in a Bullish Breakout ahead of the BOE Inflation Report

GBP/USD in a Bullish Breakout ahead of the BOE Inflation Report

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Consolidation: The GBP/USD has been consolidating above the 1.4950-1.50 support area, which was the lows on the year so far, and maybe for a bit longer. I say that because cable has shown resilience through a hawkish FOMC and a strong US jobs report. It remained above 1.50 and has rebounded to 1.5350.

GBP/USD 4H Chart 2/11
gbpusd nfp
(click to enlarge)

Bulls in Charge Despite Strong US Jobs Data: The 4H chart shows that the market retreated from 1.5350 at the end of last week, after a strong US Jobs report. However, cable held above 1.52, which was a common resistance area during the recent consolidation. The support at 1.52 also showed respect to the just completed price bottom. Also, the RSI held above 40 after tagging 70, showing that the bullish momentum is still in play in the 4H chart. Finally, price has crossed over the 200-, 100-, and 50-period SMAs. Last Friday’s reaction to the US jobs report made cable test the 200-period SMA as support, and it has so far acted that way. This is another technical sign suggesting further upside.

Bullish Breakout: Then, after a couple sessions of indecision this week, traders now seem ready for more bullish price action, trading cable up above the 1.5270 resistance.

This price action exposes at least the 1.5350 high, with risk of GBP/USD extending towards the 1.55 handle, which I will discuss in a little bit.

At this point, if there is a pullback and the bullish outlook is in play, we should look for support at or above 1.5250.

GBP/USD Daily Chart 2/11
gbpusd daily chart 2/11
(click to enlarge)

Cracking a Trendline: In the daily chart, we can see that GBP/USD has a price bottom put in and is threatening to break a falling trendline that come down from July 2014’s high at 1.7190. For this bullish breakout scenario, the first challenge as resistance will be around 1.55 level which is a previous support, and perhaps more significantly the 1.56, support/resistance level from November through December.

Fundamental Risk:
The Bank of England’s Inflation report will be released on Thursday (2/12) and it looks like the market is front running it as positive. The previous report downgraded growth and inflation forecasts. If the economic projections neutralized, the current rally could be justified, and we can see some further upside towards 1.55-1.56. However, if the MPC does not improve its projections and talk about inflation concerns, we should expect the GBP/USD to come down to test the 1.52 support.

If 1.52 breaks, cable would likely be reviving a downtrend, with exposure first to the 1.4950-1.50 lows.

Previous Post by Author: USD/CAD in a Bullish Continuation Breakout

About Fan Yang

Fan Yang has been a forex trader since 2007. He attained his Chartered Market Technician (CMT) designation in 2010 and continues to trade and serve the Forex community by sharing his market outlooks.
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