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- GBP/USD outlook technically now more bullish
- Pound-to-Dollar rate extends young uptrend above a trendline
- Traders said to be 'buying the dips' on intraday charts
The Pound-to-Dollar rate continues grinding higher and has now established itself above the 1.31 level - a far cry from the 1.2660 lows of only a month ago.
The rise has been driven by an increasing perception that a no-deal Brexit is now increasingly unlikely because the fallout would simply be too catastrophic - at least according to most authoritative forecasts anyway.
From a technical perspective we have had a further breakthrough on the charts which appears to solidify the uptrend - the pair has now broken above the trendline for the most recent phase of weakness since the 1.34 June highs on a closing basis.
The break was noted by Richard Perry, an analyst at Hantec Markets who says, "intraday corrections are a chance to buy".
"Looking at the technical picture, the pair has been finding decent dip-buying interest and scaling higher along a short-term ascending trend-line on the 1-hourly chart," adds an analysis note from FXStreet.
"The Cable recovery continues, with another positive candle that has now broken a four month downtrend. The market is now decisively above $1.3000 and is now having a look at the late July resistance $1.3170," says Perry.
Trendline breaks are a big deal for technical analysts because they are one of the things they look at to determine whether the trend has changed. GBP/USD has already broken above the major trendline drawn from the April highs suggesting a reversal then, but now with Friday's break there is even more evidence of a trend-change.
More immediately trendline breaks point to follow-through gains on the other side. The usual method for determining how much further a pair will extend is to take the length of the last move prior to the trendline ('x') and extrapolate it above ('y'). This suggests a considerable move higher to just shy of the 1.34s.
Yet before the exchange rate reach such heights there are some formidable obstacles lying in its way, especially clustered around the 1.3180 level, including the 100-day moving average (MA) and the R2 monthly pivot.
Both are levels were the exchange rate could run into difficulties leading to either a stall, pull-back or reversal, so we would place or next forecast target at 1.3180.
Several analysts have also pointed out the strong trend on the hourly chart.
The 1.3025 -1.3085 zone is a near term 'buy zone', according to Perry.
All three main momentum indicators - RSI, MACD and Stochastics - are all constructive, further enhancing the bullish outlook.
"Momentum is increasingly positively configured with the RSI rising into the mid-50s, the MACD lines accelerating above neutral and Stochastics strong," says Perry.
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