One of the FX performers lately is the GBPUSD pair. It recovered the psychological 1.30 level, without much of an effort. Does it have the power to move above?
The pair just broke higher out of a triangle that acted as a reversal pattern. When the price breaks the upper trendline, also called the b-d trendline, the price action that follows continues until it reaches the measured move.
Moreover, the breakout should come around the time zone of the apex, which is just what the GBPUSD did.
Weak USD Did Help the GBP
The Fed message yesterday left no room for interpretation – the USD swap lines remain open; the lending facility remains in place until the end of the year. Moreover, the Fed stands ready to do more.
The recent virus outbreak in the United States puts further pressure on the USD. Therefore, any USD spike should be viewed as an opportunity to add to the long side on the GBPUSD pair.
GBPUSD Triangle as a Reversal Pattern
The GBP to USD exchange rate almost recovered the drop in March. Equally important, it recovered above the 1.30, a predictable move ahead of the Fed’s decision the other day.
After the March abrupt move lower, the GBPUSD pair gradually recovered by putting in a series of higher lows. Such series typically forms during triangular patterns – especially patterns that act as reversal ones.
Moreover, a feature of such triangles calls for the breakout of the upper trendline to occur around the time zone of the apex. By definition, the apex represents the intersection point of the triangle’s two trendlines. In this case, the apex comes, ironically enough, at the 1.30 level, just where the price sits now.
To trade the triangle’s breakout, place a stop-loss order at the 1.28 level and target 1.3450-1.35 area. The price should fully recover the March drop while aiming for 75% of the triangle’s longest leg.