GBP/USD: Time To Buy Consolidation

The market seems to be digesting the latest 2Q GDP release, and it appears as if the better-than-expected data is easing the fears that have long dominated the market on UK’s economy contraction. The key question was whether the economy was slowing down before the Brexit vote or not.

The pound is relatively unchanged against the dollar, even though UK’s economy is growing at a higher pace than expected. GBP/USD has been isolated in a range for several days now and has oscillated between 1.3165- 1.3056, however we consider this a good sign for the moment as bears seem to have used their fuel.

On a more technical note, an inverse head-and-shoulders is completed, however bulls need more confirmation and a higher volume in order to break the neckline and possibly head towards 1.34.

GBP/USD H4 Chart – July 27, 2016

GBP/USD H4 Chart

The most appealing factor in the above chart is pergence between AO and price action. Historical patterns reveal that whenever such pergence occurs, it does not take long for price to start reacting according to the indicator (good majority of samples).

Besides pergence, on the chart below it is clear GBP/USD is refusing to break 1.305 after trying multiple times. The best risk reward positioning for the time being is going long in current prices (1.31) with a stop loss at 1.306 and first target 1.315 at SMA 200. If that resistance breaks, we can aim for more up to 1.32 and the higher levels of the highlighted area.

GBP/USD M30 Chart – July 27, 2016

GBP/USD M30 Chart

If this swing position goes as planned, we might later on aim for 1.34 before the real test on the upper trend line of the channel in the first chart.

*Enter with sizes smaller than usual due to FOMC, despite the fact that stop loss is small.

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