At 8 am London time, the GBPUSD reached a new monthly high at 1.2786, as the US Dollar drifted lower against most of its peers.
The primary motivator behind the weaker dollar is the “risk-on” mood we have seen across the world as the world economy gets ready to open for business.
Most traders would have expected the USD to recover its losses following last week’s stellar US Non-farm payrolls report. However, in times of crisis, good US economic news can have the opposite effect on the USD, as traders rush to buy down beaten assets in exchange for dollars. This trend could continue for longer, and the short-term trend does suggest that GBP to USD could keep on drifting higher.
From a technical analysis perspective, the trend in GBP to USD remains upwards. A rectangle pattern formed from June 5 to 7 am this morning when the pattern triggered. The difference between the low and the high of the pattern is approximately 128 pips, and we add it to the upper resistance level at 1.2746, to obtain the target of 1.2874.
Tactically, there are a few ways of trading this pattern. There is a group of people that are already long from the breakout point at 1.2746. However, the gains in the pair have been limited so far. I suspect short-term traders will wait for a break to today’s high of 1.2787 to confirm the breakout.
The alternative scenario is to wait for a stronger pullback, as the GBPUSD is already up by 147 pips from yesterday’s low. If the GBP to USD were to give up 61.8% of its gains from yesterday’s low of 1.2615, the price would slide to the 1.2680 level, and it is from this level, I think traders that are looking to buy a dip would get involved.
A break to yesterday’s low of 1.2615, will invalidate the very short-term bullish outlook, and the rectangle pattern.