British Pound Likely to Continue Recovery

Alan Penny

27 December 2019

3 min read

  • 50 day EMA holds
  • Bullish flag holds
  • Value hunters returning

During the Friday session, the British pound rallied quite a bit. British Pound analysis shows that this is a confirmation of the support that the 1.130 level should offer. It looks as if the sellers have been pushed back as they got a “sell on the news” situation with the UK elections. There was concern about Boris Johnson leaving the European Union without any type of deal in the so-called hard Brexit scenario, but the overreaction has been abated.

Technical British Pound analysis

GBP/USD yearly chart

The technical analysis for this pair is strong, considering that it had shot straight up in the air and then pulled back rather drastically. There was quite an overbought condition reaching towards the 1.35 handle after the election results. Since then there has been a rather significant crash. Looking at the technical analysis on a longer-term chart, a clearer picture can be seen as it is still a very strong move and currency pair.

another reason to think that the buyers could continue to push this market higher

Looking at the 1.30 level, it is a large, round, psychologically significant figure and it will of course attract a lot of attention. The 50 day EMA is sitting just below and has offered support, so there’s another reason to think that the buyers could continue to push this market higher.

Further compounding the potential support in this area is the fact that the previous bullish flag that has been broken out of now has offered support. That bullish flag measures for a move towards the 1.38 handle, which is the longer-term target. In the short term though, there are signs of resistance at the 1.3250 level and the 1.35 handle.

The play going forward

The play going forward in this pair is to simply buy short-term pullbacks and little bits and pieces. It is important not to jump in with both feet into the British pound as so many fellow traders have found out to their detriment over the last couple of years. Even though the market does look very bullish at this point, there are a multitude of headlines that can happen that will suddenly shock the market. That being said though, the market is likely to continue to find buyers on short-term pullbacks. These indicators show that it may be time to start looking for value in this pair.

Building up a core position is probably the best way to go, as this is a longer-term play just waiting to happen.

There will be the occasional headline to send this market lower, so instead of jumping in with a large position, these types of pullbacks can be used in order to build up a larger position. As the resistance barriers above get broken, it’s likely that more money will flow into this market that has clearly seen a significant shift in attitude. Longer-term, the British pound is historically cheap, and traders are starting to realize that reports of the demise of the United Kingdom were greatly exaggerated.

Written By
Alan Penny

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