The GBP/USD currency pair continues to consolidate around key level 1.3500 with no major movement up or down. The pair is expected to continue with its seesaw movement potentially till early next week when anticipation and pricing in of major economic data will begin to kick in.
On Thursday, the Cable as it is popularly known in the forex market showed a short spike before retreating to the usual range.
The spark was triggered by news that the U.K. was preparing to remain in the customs union post-Brexit. This send the GBP/USD pair sailing to hit 1.3568, which also turned out to be its daily high. However, the news was later confirmed to be false with the U.K. Prime Minister, Theresa May, while speaking in Bulgaria stressing that “the United Kingdom will be leaving the customs union, we are leaving the European Union.”
And while PM May did leave the door open for future negotiations, even this message did not trigger any optimism with Irish Prime Minister remarking that there is a huge possibility that no deal will be struck between the U.K. and the E.U.
Therefore, things continue to hang in the balance about post-Brexit relations between the U.K. and the E.U. and this type of stalemate is likely to continue in the foreseeable future. As such, GBP/USD traders will be looking at major economic data in both the U.K. and the U.S to determine their approach to the market.
Nonetheless, even with no major events in the coming days, traders can still target key support and resistance zones for long-term trading opportunities. The daily chart below shows that there is still a bullish bias despite the pair ending the week on a sideways movement.
Based on the daily chart above GBP/USD consolidation at 1.3500 has helped the pair to build a sturdy base for a potential upward movement. The psychological key support has remained resilient since last week and looks set to hold at least until early next week.
Therefore, traders will be looking at potential bullish targets at 1.3600 short-term, which is well within reach even given the current sideways movement. That would be more than 80 pips worth of profit based on Thursday’s exchange rate of about 1.3518.
However, for healthier margins, traders can look at intermediate to long-term opportunities at (R1) 1.3800, (R2) 1.4000, and at (R3) 1.4360. The medium to long-term targets will be achieved if the pair manages to climb back inside the ascending channel.
Should a resumption to the bullish channel fail, this would imply a potential movement downwards, which would attract the interest of the bears. For traders with a downward bias, key potential targets can be found at (S2) 1.3317 and (S3) at about 1.3060.
All these targets might not materialize potentially till the end of the month as they require substantial movement up or down. So, where do traders look for short-term profits? The 45-min chart below paints a better picture.
The 45-min chart above has two contrasting wedges within what looks like a descending channel. The first one is a widening wedge, which touches the lower line of the channel on three occasions (A, B, C) before the GBP/USD pair climbed up to touch the top line at the point denoted by (1).
From that point on, the pair then trades in what appears to be a narrowing wedge. And on Thursday, when local new outlets had reported that the U.K. would remain in the customs union post-Brexit, the GBP/USD currency pair climbed again to touch the top line for a second time this week denoted by (2).
It then retreated but bounced back before testing the previous low and now, it looks like it is headed for the top line again to make contact for a third time this week denoted by (3). If that happens, then it creates a good short-term profit opportunity for the bulls at 1.3550, which will result in more than 30 pips worth of profit.
Interestingly, based on the chart above, this could happen today, Friday May 18. But for the bears, the short-term profit opportunity can be found at the immediate support level at 1.3470, which is roughly 50 pips down from the current exchange rate.
In summary, the GBP/USD pair seems to offer little from a technical perspective. There isn’t any major macro event that is anticipated to cause a major movement in the currency pair in the near term, which again hands the baton back to technical analysts to figure out. Narrowing the time frame to the 45-min chart seems to bring to light some interesting opportunities for short-term traders.