The GBPUSD is back-testing key support as resistance.

The Cable lost its upside momentum in the middle of December after a strong (12%) rally higher and the 3 month period of consolidation that followed ended with the pair accelerating lower to test the 1.14 area just last week. It has since managed to rebound to back-test the 1.1950 – 1.20 area which from a technical perspective is very critical. Specifically, this zone has acted as support in several occasions since the post Brexit low and we would consider it extremely likely to see it act as resistance now that it is getting getting tested from below.

GBPUSD testing resistance

For the time being we view this rebound as corrective (a bear flag) and a break below 1.16 will indicate that the pair is continuing lower towards the next downside objective. One such area is the 161.8% extension of the 2019 rebound higher  which comes at 1.09964. We would expect a much larger rebound to unfold from there but that is the story for another post. If the aforementioned zone fails to reject price, the next upside objective would be the 1.2180 – 1.22 resistance area.

GBPUSD Bear Flag

Looking at the DXY for confirmation, we see that the index is likely forming a bullish pennant here, which in turn would imply at least 1 more leg higher to multi-year highs (above 103.60 and likely closer to 105). Trade well and don’t forget that our first job in trading is proper risk management, especially in volatile periods like this one.

Steve Voulgaridis