British Pound Breakout: GBP/USD Drives Above 1.3000, Six-Month-Highs

BRITISH POUND TALKING POINTS:

• The British Pound has continued to rally, mounting above a key psychological level that had previously capped the advance in GBP/USD.
• Is there room for more? Fresh breakouts can be difficult to chase, and pullback potential remains for bullish trend strategies.

GBP/USD TO FRESH SIX-MONTH-HIGHS

The feel-good theme in the British Pound continues as GBP/USD pushes up to fresh six-month-highs; and with a bit of context, this marks a huge sea-of-change in the British currency that was so downtrodden just a few months ago.

Price action in GBP/USD has scaled-above the psychologically important 1.3000 level that had previously marked the high in October. Prices have run all the way beyond the 1.3100 figure, finding a bit of resistance from 1.3117 which is the 38.2% Fibonacci retracement of the ‘Brexit move’ in the pair. This extends the breakout scenario that was investigated yesterday in GBP/USD, with prices bursting above that prior October high and continuing to rally through this morning’s trade.

GBP/USD WEEKLY PRICE CHART

GBP/USD BACKDROP

The year of 2019 has really been a tail of two trends in GBP/USD, helped along by drivers around both Brexit and the US Dollar. As skepticism around Brexit showed up in April of this year and as threats of a No-Deal Brexit permeated the backdrop worry engulfed the currency and the British Pound spent much of the next four months in varying forms of sell-off. By the time August rolled around, GBP/USD was perilously close to the 1.2000 spot and this led into a chorus of calls for parity against the US Dollar.

This is around the time I started looking for support in the pair as a couple of factors opened the door to reversal potential: GBP/USD hadn’t spent much time below the 1.2000 spot, even in the post-Brexit backdrop – and price action found support around a long-term trendline projection, taken from swing-lows set in 1985 and the 2016 ‘flash crash’ in GBP/USD.

GBP/USD MONTHLY PRICE CHART

That trendline came into play in early-August and the rest of that month saw fairly equalized price action as buyers began to re-enter the picture. The September open saw a quick probe-lower, after which buyers made a more pronounced re-entry into the situation, helping to push a +500 pip retracement during the month.

But October is when this theme really came alive and GBP/USD pushed all the way back up to the 1.3000 level after having tested below 1.2000 the month before. A bit of optimism on the Brexit-front helped to punctuate the move and buyers remained bullish, even with the psychological level coming into play.

GBP/USD DAILY PRICE CHART

With that ominous level of resistance sitting overhead, buyers had their work cut out for them over the following six weeks, leading to the build of a range-formation with resistance showing just inside of the 1.3000 spot. Support, on the other hand, came in from a variety of places, and over the past few weeks there were a couple of different interesting entry setups, looking at the 1.2820 Fibonacci level or the 1.2900 confluent zone – each of which filled-in and led to another topside ramp.

GBP/USD FOUR-HOUR PRICE CHART

At this stage, euphoria has taken over and prices have flexed all the way up to another point of potential resistance. This can be a difficult scenario to work with because clearly the motivation has been bullish and one-sided, thereby producing a challenge for fades or reversals off of this level. And given that we’re trading in some rather rarified air, there’s a lack of nearby support/resistance points to use for higher-low support or points of re-entry.

This type of scenario can be approached with the aim of patience, looking to some of those prior resistance levels as possible areas for higher-low support. The 1.3000 zone becomes an obvious area for such on the chart, as this was a clear line-in-the-sand that held into this week. If that doesn’t hold, prior resistance around 1.2950 could be utilized for support potential.

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