The British pound currency has bounced back above the 1.3300 level against the US dollar as the pair benefits from early-week softness in the greenback as risk-off sentiment returns.
Traders sold sterling and the FTSE100 broadly over fears that the Omicron Covid-19 variant. Multiple infections of which have now been picked up across the UK, which poses downside, meaning potential lockdowns.
Any further hint from the UK’s health minister about a potential lockdown, which have not yet been taken off of the table, would likely sink sterling significantly lower, alongside UK stocks.
From a technical perspective a potential double-bottom pattern is in place after sterling bounced just a few pips above the current annual lows, which was printed last Friday at 1.3278.
Should we see the 1.3278 support zone holding I fully expect that the GBPUSD pair could target the 1.3400 to 1.3450 resistance zone this week, with the ultra-bullish scenario taking sterling towards the 1.3670 level.
Alternatively, a break under the 1.3278 support level would take the GBPUSD pair towards the 1.3180 to 1.3150 area most likely, with the 1.3000 level the ultimate bearish target.
According to the ActivTrader Market Sentiment tool traders are currently slightly positive towards sterling, despite the massive pullback from the October highs, with some 58 percent of traders are bullish towards the GBUSD pair.
This is a big drop from last week, which saw a sentiment peak of 76 percent. This drop in bullish sentiment could mean that GBPUSD pair may start to stabilize and reverse. As things stand, sterling is finally balanced.
GBPUSD Short-term Technical Analysis
Looking at the daily time frame a bullish double-pattern could be about to form if bulls can defend the former weekly low. Much will depend on risk sentiment.
Double-bottom pattern form when sellers are unable to break a major or significant lower upon a technical retest. A double-top pattern happens in the reverse scenario.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame, the GBPUSD pair has formed a large head and shoulders pattern, which has yet to fully reach its downside target.
The pattern projects that the GBPUSD pair could drop some 400 points if weakness persists under the 1.3400 support region, taking it towards the psychological 1.3000 level. A final right hand could form if sterling bounces from current levels around the 1.3400 to 1.3500 area.
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