Technical Analysis: GBPUSD – The bullish trend is set to continue higher for a higher time frame
- The pound rose 7% in value against the dollar on the day the United Kingdom left the European Union.
- Boris Johnson warned that the United Kingdom will not agree with the rules set by the European Union.
- Negotiating the free trade agreement with the United States, Japan and Australia is currently the key focus of the Boris administration.
Dollar Index weakness confluent with the strength of the Pound
The dollar index had a strong sell-off below 98.20 on last Thursday. Technical analysis seems to suggest that the bullish momentum of the Dollar is weak given that the dollar index has failed to close above 98.00 for more than 3 consecutive periods.
It also indicates that the sell-off may persist as the price had a strong break-out from the immediate rising wedge. Although the dollar index displayed a strong upside when it broke the larger formation of the falling wedge, the rise was capped at 50.0% of the wedge formation from 99.68-96.34, which greatly confluent with the 98.00 psychological level. (Figure 1)
Figure 2: GBPUSD Daily Chart
Looking at the GBPUSD daily chart, the strong bullish breakout of the pennant indicates a very bullish uptrend. Trend analysis also suggests that it is set to continue with the GBPUSD making a series of higher highs and higher lows. The 50 and 200 SMA shows a bullish Golden cross, validating the strong upside of the currency pair.
Figure 3: Minor wave count on the GDPUSD
The minor wave count indicates that GBPUSD has completed its 3rd wave cycle upon reaching 1.3400. Current wave analysis clearly indicates a potential completion of wave 4 as the price has already broken out of the pennant.
However, there is a possibility for a potential downside correction to the 61.8% of the Fibonacci retracement at 1.2680 regions highlighted in blue.
Figure 4: GBPUSD daily chart shows a perfect prediction of upside movement.
The hourly chart clearly showcases a bull run as the hourly Golden cross confirms the bullish upside. Although there is a strong bearish rejection at 1.3200, the bearish momentum post the 1.3200 level is weaker. This signals that the bears are not in control and the bulls are waiting for the desired price level to stage a strong rebound. As such, the potential rebound area is predicted to be at the 1.31298-1.31200 level, highlighted in blue. The potential rebound area is also confluent with the 2nd base touch of the potential bullish flag.
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