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- Sterling pulling-back after peaking in 1.94s
- Technicals suggest uptrend will probably resume
- Move above highs would confirm next target at 1.96
The Pound has opened the week softer against the New Zealand Dollar but our technical studies of the GBP/NZD exchange rate suggest it is likely to maintain a positive tone over the short-term.
The GBP/NZD is trading at 1.9233 at the time of writing, having risen 1.0% in the previous week as the Pound strengthened on the back of a decreasing probability of a ‘no-deal’ Brexit.
In line with greater Sterling strength, the pair has been recovering ever since it bottomed at the start of December - rising from lows of 1.81 to highs of 1.94.
From a technical perspective, the short-term uptrend is now established and likely to continue, but there is some solid resistance at the current highs which could act as an impediment to further gains.
The 50-week moving average (MA), for example, is successfully capping gains on the weekly chart at 1.9281 which is close to the current market level.
After peaking at 1.94 earlier in the week the pair has fallen back to the level of the MA at the close which could either mean that the break was unsuccessful, and that it could, therefore, turn lower, or that the break was successful and the exchange rate could use the level as support for a move higher in the week ahead.
The first few days of activity this week could be crucial in determining which outcome it is to be.
The daily chart shows the pair rising from off the December 12 lows up to the 200-day MA which it broke above for the first time on Friday.
The whole move up over the last 6 weeks has formed a broad ABCD pattern, which now looks like it is complete.
ABCD patterns are normally composed of two waves in a trending and one intervening wave in a counter-trending position. The trending waves AB and CD are usually of a similar length, which appears to be the case with GBP/NZD.
If the pattern is complete, the next move will almost certainly be down, as traders take profit on their positions and the market corrects back.
The pull-back is only likely to be temporary, however, until the next move higher begins in line with the broader uptrend since the December lows. A break above the weekly 1.9425 highs would provide confirmation of a probable move up to 1.9600.
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