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- GBP/USD may have found a formidable floor
- Longer-term outlook still favourable
- Possibility of a recovery higher beginning
Pound Sterling has risen ahead of the weekend as markets react to news that Prime Minister Theresa May has set a date on which she will exit Downing Street.
The developments clear up some uncertainty over the outlook for UK politics, for the time being at least.
Currencies tend to react positively to any degree of diminished uncertainty, hence the GBP/USD exchange rate has rallied to 1.2687 having been as low as 1.2606 earlier in the week.
There is however also a technical view at play that says the Pound was always going to find buying interest at current levels.
Analyst Joel Kruger at LMAX Exchange says GBP/USD may have reached a key long-term support level at the current 1.26 lows where it could bounce and continue its more constructive longer-term technical picture.
“Despite the Pound’s set-back to recent lows there has been no change in the overall outlook we see the market well supported into current levels,” says Kruger. “The market has seen a lot of support down into the 1.27 area over the past several months, and this internal support should once again support the market for what we believe is a more constructive outlook.”
This “internal support” level is composed of troughs in July and October 2018, as well as January and February 2019 (marked with crosses).
For technical analysts old lows are often a place where the market finds a floor as they attract short-term technical buyers who anticipate a bounce and want to profit from it by scalping. This increases demand at these levels and makes them ‘stickier’.
The longer-term picture is bullish because of the higher low in 2019 which has sketched the beginning of a peak and trough rise from the 30-year 2016 low, according to LMAX. The patterning hints at the start of a longer-term staircase higher for the pair.
“With the higher low sought out by that 2019 low early in 2019 above the +30 year low of 2016 in favour of a developing uptrend that should eventually take the market higher up towards and through the 2018 high of up towards 1.44,” says Kruger.
The recent setback means the market needs to recover for the uptrend to get back on track and LMAX Exchange ideally would wish to see a break above a 1.3040 high to confirm such a recovery, “alleviate that downside pressure and put the focus back on the topside.”
Such a move would then open the way to the rise up to Kruger's target at 1.44.
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