Following the low volumes experienced during the European Bank Holiday weekend, it has been another bullish start to the working week for GBPUSD; trading up to 1.6990 in Tuesday’s European trading session. The question is, however, is this trend set to continue?
The general consensus on the street seems to be that it will, with some forecasting that there could be a rise to 1.76 by Q4; strong economic data in recent weeks have been cited and with renewed expectation that a rise in interest rates could occur sooner than was previously thought, the UK economy appears to be getting stronger and stronger as the weeks go by.
Technical studies, however, could point to a different scenario with the commercials looking for a possible reversal in trend; figures indicate that COT extremes on both the 6 & 18 month look backs are showing a 3% & 7% alert respectively. The graph below illustrating an increase in the number of short contracts and a huge decrease in the commercials’ net positions throughout 2013 & 2014:
The currency pair is running into a strong resistance zone; the weekly chart also looking over bought on both the RSI & Stochastic Indicators:
With the price currently sat within this zone, bearish price action with clear signs of divergence in the next couple of weeks could indicate a good time to enter the market and catch this potential trend reversal. This also ties in nicely with historic seasonal data taken over the last 10 years which shows the US$ being strong on average throughout the month of May; it will be interesting to see if this holds up in 2014 too, but only time will tell.
Abshire-Smith would love to hear what you think so please feel free to leave any comments on this analysis or provide some of your own in the comments section below.