GBPUSD: Technicals Suggest a Potential Run to June Highs; How Will Brexit Talks Affect Direction?

Just like most currency pairs, GBPUSD is benefitting from the slight pick up in risk appetite at the start of this week’s trading. As of this writing, GBPUSD is up roughly 20 pips from its opening price as it trades around 1.2483. This week is going to be a quiet one for the currency pair in terms of economic data. However, Brexit negotiations will still continue and could dictate the direction on GBPUSD.

Aside from the impressive June NFP figures last week, China released positive economic data over the weekend which helped boost optimism among investors. Consequently, risk currencies which include the GBP are trading higher in today’s Asian session.

For the next few trading days, GBPUSD will likely take its cue from market sentiment as Brexit talks continue. News which hint that the UK and EU could come into an agreement would be bullish for the currency pair because it may mean that the risks to the British economy would be limited. On the other hand, if news reports reveal that negotiations are turning sour, GBPUSD coil trade lower because it may suggest that the outcome could be a no-deal Brexit.

Outlook

On the 4-hour time frame, it can be seen that GBPUSD has recently made higher lows. Because this follows a series of lower lows, the currency pair’s price action suggests that a potential head and shoulders pattern could be in the making. As of this writing, GBPUSD is testing support at the 200 SMA and 100 SMA at 1.2460. If support at this level holds, we could soon see the currency pair complete the chart pattern when it tests its July 2 highs at 1.2530. A strong bullish close above this price may mean that GBPUSD could soon rally to its June 16 highs at 1.2686.

On the other hand, a bearish close below the low of July 3 at 1.2437 may indicate more downside potential. GBPUSD could soon then fall to its June 29 lows at 1.2250. Should this happen, the inverse head and shoulders chart pattern will have already been invalidated.

GBPUSD, 4-Hour Chart

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