Pound Sterling Rebounds Once Again

Since the start of yesterday's session, the pound has risen, which looked more like a usual rebound after a rapid fall a day earlier. Later, the pound was driven by the final data on the business activity index, which came in much better than preliminary estimates.

Thus, the services PMI was expected to drop to 51.8 from 58.9, but actually, it declined to 53.4. The composite PMI decreased to 53.1 from 58.2 while it was forecasted to fall to 51.8. Yet, the market expected a much deeper decline, which created an imbalance in the pound.

After the start of the North American session, the pound developed strong growth even though the information background was quiet and nothing could move the market. At the same time, the sterling has been trading in the range of 1.2500 - 1.2600 for the whole week and leaves it only for a short time.

Despite a strong upside movement, GBP is still stuck in this range. Given the lack of news background, technical factors determine its trajectory. The pace of movement between the two boundaries is rather surprising. Today, the price is expected to move towards the channel's lower boundary.

UK composite PMI.
UK composite PMI.
Technical Outlook And Trading Signals

GBP/USD has rebounded from the support area of 1.2450/1.2500 for the third time in a row. A rapid decline followed the rebound in the volume of short positions. As a result, the pound returned to the level of 1.2600. After that, the pair was trading flat in the range of 1.2450/1.2600.

GBP/USD 4-hour chart.
GBP/USD 4-hour chart.

The RSI on H4 crossed the median line of 50 in the course of the recent upside momentum. This was a signal to buy the sterling. Please note that the current flat movement indicates a changing market sentiment which is why the buy signal from the RSI should be disregarded.

Moving Averages of the Alligator Indicator on H4 have multiple points where they cross, another confirmation of a flat market. The Alligator Indicator on D1 also has some intersections between the MAs, meaning that the upward cycle is slowing down.

In this situation, the main focus should be on the sideways channel between 1.2450 and 1.2600. This is where the most speculative activity is observed. If the price settles beyond any of the boundaries of this channel, this is likely to change the market balance drastically.

Long positions should be considered as soon as the price holds above the level of 1.2600 on the 4-hour chart with the targets at 1.2660–1.2720. Short positions will be possible when the price holds below 1.2450 on H4 with the targets at 1.2350–1.2300.

Comprehensive indicator analysis generates a mixed signal in the short- and intraday time periods due to the flat movement. In the medium term, indicators also show mixed signals due to a slowdown in the correction. This kind of uncertainty in the technical tools indicates the possibility of a rapid change in the market.


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