The British pound had a mixed week against the US dollar last week, as sterling started the week with a strong bid-tone towards the 1.4000 resistance level and then started to gradually fade lower.
For all intents and purposes it now appears that the GBPUSD pair is starting to carve out a massive complex inverted head and shoulders pattern across various time frame. This is a bullish price pattern that is categorized by multiple shoulders, which need to form before lift-off can begin.
To me, this would suggest that the GBPUSD pair is eventually going to break higher, however it may need some time for the pattern to fully develop. Looking more closely at the pattern, a break above the 1.4010 level is now required to set the next stage of the pattern in motion, which is forming the final right-hand shoulder.
It would seem that if I am correct, and a complex inverted head and shoulders is forming then buying price dips would be prudent. The sweet spot for bulls appears to be between the 1.3780 and 1.3880 price area right now. And indeed this is what we saw last week.
In terms of what bears need to do now to completely negate the bullish short-term view, they would need to hold the GBPUSD pair below the support 1.3700 level, and specifically the 1.3670 level.
Sterling also has cross flows from the EURGBP pair causing sterling to somewhat stall, meaning that euro strength has been a headwind for the British pound. Theoretically we may need to the euro currency hit meaningful resistance before lift-off in the GBPUSD pair fully takes hold.
According to the ActivTrader Market Sentiment tool a sizable drop in bullish sentiment has taken place since last week, with some 56 percent of traders remaining bearish towards the GBUSD pair.
During the same time last week some 69 percent of traders were bearish towards the pair. Typically, we look to fade sentiment, so we may need to see sentiment turning heavily negative again before a short-term bullish trend form.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, a head and shoulders pattern has been invalidated, with bulls testing towards the invalidation spot or head of the bearish pattern over recent days.
Continued gains above this invalidation spot, plus the overall size of the pattern certainly indicates a coming rally towards the 1.4100 resistance level, at a minimum.
Overall, watch out for a rally in the GBPUSD pair towards the 1.4100 level while the price trades above the 1.3890 level.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame the GBPUSD pair appears to be forming a complex inverted head and shoulders pattern, with the structure of the pattern nearing completion near the 1.4230 level.
Looking at the size of the potential price pattern the GBPUSD pair could rally towards the 1.4700 price area, at a minimum, once we start to see gains above the 1.4230 level, and the price pattern fully ignited.
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