Double Top on GBPUSD Suggests That Its Rally is Running Out of Steam

Despite the lack of economic data from the UK, GBPUSD still managed to close higher in yesterday’s trading. The currency pair surged to a high of 1.3151 before closing at 1.3136 with an 89-pip gain for the day.

It would seem that most of the gains on GBPUSD can still be attributed to the positive UK labor figures we saw earlier this week. Remember that the Office for National Statistics reported that only 14,900 people claimed for unemployment benefits in December. This figure was much lower than the consensus at 33,400. It’s possible that investors are re-adjusting their expectations lower for a rate cut from the BOE which is due to meet next week.

With today’s calendar still blank for reports from the UK, can GBPUSD hold on to its gains?

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GBPUSD Outlook

On the hourly time frame, we can see that a double top chart pattern has materialized. This is widely seen as a bearish indicator because the market was unable to trade above its previous high. A bearish close below the neckline support around 1.3118 could mean that GBPUSD is headed lower. Near-term support is around 1.3078 where the rising trend line seems to be (from connecting the lows of January 20, January 21, and January 22). On top of that, the price also coincides with the 61.8% Fib level when you draw the Fibonacci retracement tool from yesterday’s low to intraday high.

However, a bullish close above yesterday and today’s high at 1.3151 would invalidate the bearish chart pattern. It could mean that GBPUSD is on its way to its January 7 high above 1.3200.

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