Technical studies suggest Pound Sterling's uptrend against the Dollar remains intact, but heavy resistance at a monthly pivot could thwart the advance.
Pound Sterling endured a sharp retracement against the Dollar in mid-week trade which takes the GBP/USD exchange rate back down to 1.32 having been as high as 1.3329 the previous day.
Despite the Dollar's recovery, the Pound remains favoured based on technical studies.
The first thing to note is that the pair has broken above the key August 1.3266 highs and our previous target at that level, which itself is a very bullish sign.
The pair has subsequently followed-through higher to a new peak at 1.3329; it remains very much in an uptrend.
The way up is barred, however, by the location of the R1 monthly pivot at 1.3352, which is likely to provide a strong obstacle to further gains.
Monthly pivots are used by traders as the focus for counter-trend trades which generally leads to a stalling of the dominant trend at their level, and sometimes even a reversal.
We would ideally like to see a clearance of the pivot before forecasting, with any reliability, an extension higher, but a move clearly above - confirmed by a break above the 1.3375 level - would support a bullish outlook to a fresh target at 1.3500, where the exchange rate would probably intersect with a major trendline.
The MACD momentum indicator is rising and above the zero-line supporting the uptrend.
The latest analysis from Commerzbank's technical analyst Karen Jones is even more bullish as a result of the break above the 1.3267 August highs.
"GBP/USD has eroded the 1.3267 August high, this was also the approximate 50% retracement of the move down from June 2016 (1.3255). This was key resistance and the close above here should be enough to trigger another leg higher to the 1.3443/6 September 2016 high," said Jones.
Nevertheless, Jones also notes the strong potential for a pull-back in the short-term as a result of the TD Sequential Demark indicator reaching a "13 count", and stipulates the 1.3035-70 level as a likely downside target.
"Very near term we notice the 13 count on the 60-minute chart and would allow for a minor dip back. Dips are indicated to hold circa 1.3070/35. This guards minor support at 1.2986 ahead of the 1.2826 longer term channel," said Jones.
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