GBP/USD Continues To Outshine on Strong Technicals

Thursday, 28 October 2010 

Looking at a 30 minute chart of the GBP/USD will clearly show that the currency pair has been trading sideways in the last few weeks. However, if you extend that chart back in time by a fair way (say 2 months) - you'll note that the trend has most certainly been upwards - as the USD has continued its drive downwards.

Even with the sideways trading that we have seen in the currency pair recently, we believe that this stalling action will be only short lived. It would seem that the technical aspects of the 30 minute chart are holding, to a great extent, at the moment.

Let's take a look at the sideways trading over the last few weeks to see exactly how strongly the technical indicators and levels are influencing the currency pair overall.

Firstly - we need to take note of the two moving averages that we have placed on the chart. The first of course is the 120 period moving average. Remember, all of our MA's are done using the simple calculations - not exponentials. For reasons why this is the case, be sure to head over to our info section on this website.

The 120 period SMA is currently just above the price action of the currency pair, and it has actually been above the pair a number of times in recent history. Each and every time, whoever, the currency pair price level has extended back above the SMA - almost like a rubber band. Thus, we believe that in the absence of a clean break of the 120 period SMA, the currency will continue to bounce back above the average line.

The second SMA we have on the chart is the 240 SMA. This obviously is a longer and therefore slower SMA, but when you look at how price is trading in correspondence to this line - there is an interesting feature. On the 26th of October, the price action broke above this line - which is a bullish signal. On the 27th - it tried to sag below the line once again. However, it was quickly bounced back upwards by 100 pips.

The same thing has just happened, and we believe that not only will the same upwards trend resume (possibly another 100 pip rally), but also the fact that a double bottom could form at the current pricing level indicates that we could be in for 200% of the previous rally. That's 200 pips, and it would take us up to a level of 1.5950.

Obviously - we'll keep our eyes peeled on the GBP/USD to look out for what unfolds next.