GBPUSD: Very bullish momentum may pullback slightly before resuming higher, and faces long term bearish resistance
The daily candle chart below shows the short term price history of the Great British Pound (GBP) versus the United States Dollar (USD). This currency pair is known as GBPUSD, and is trading near 1.5761 around time of publication today.
Last time GBPUSD was reviewed in Ideas You Can Trade at the end of April, the steep bullish momentum was already well-underway - yet the pair briefly retraced lower before resuming towards current levels where a new year-to-date (YTD) high was hit today.
Looking at the last few days and how bullish the momentum has persisted with clear direction, notice that the prior steep trend line (see aqua colored line on chart below) has acted as bullish resistance by not allowing the pair to re-gain it in the last few trading days - and was only just barely regained again today. This is a very bullish sign as the pair is pushing higher to overcome that resistance line - and if sustained could reach 1.6000 very soon (if that line turns into support again).
In addition, the second chart below which shows weekly candles - reveals that the current week candle is hitting a longer-term bearish resistance line (red channel line on that chart). A brief pullback is not necessary for a bullish continuation - but something to watch for - considering the above-mentioned two lines acting as resistance.
Therefore, GBPUSD could pullback briefly before pushing higher and back into its current steep rise. From a more bullish perspective if the steep trend line is regained fully and turns back into support - it should propel the pair towards 1.6000 over the next few days. If this line is not regained the brief drop mentioned should follow.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.5814 with a Limit to take profit @ 1.5980 and a stop-loss @ 1.5701 Risk/Reward Summary: Limit risk = +166 pips profit / (-113) Stop-loss risk = Gain to Loss ratio = 1.46
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.5727 with a Limit to take profit @ 1.5635 and a stop-loss @ 1.5798 Risk/Reward Summary: Limit risk = +92 pips profit /(-71) Stop-loss risk = Gain to Loss Ratio = 1.29
Daily Candle Chart:
Weekly Candle Chart: