Will the Pound Break Resistance?

From the Desk of Ian Culley @IanCulley

The US Dollar Index’s $DXY break toward fresh lows resembles a defiant crawl more than an earnest march.

An image of dragging my children away from the toy aisle flashes across my mind.

(Actually, I let them walk around the store with their toy of choice. And then, we ditch the item before checkout after a couple rounds of negotiations. It works quite well – no screaming involved.) 

But while the DXY drags its feet, the individual currencies that comprise the index are picking up the pace. 

The Swiss franc is ripping. The euro is posting fresh 52-week highs. And the British pound is hitting our upside objective.

Our initial target for the pound marks a logical level of resistance.

But since the Dollar Index broke down less than a week ago, could the pound slice through this potential overhead supply zone?

Check out the GBP/USD pair, zoomed out:

The pound is challenging a downtrend line originating from its GFC peak as it reaches our initial target marked by the December 2021 lows. This area highlights a confluence of potential resistance and a decade-long structural downtrend. 

So far, sellers are putting their foot down as they defend this level.

Here’s a closer look at the daily chart, highlighting the bearish-to-bullish reversal in price and momentum:

The pound stopped dead in its tracks Friday as it came within 10 pips of our 1.3150 target. Our former objective now represents our line in the sand.

If and when the GBP/USD overtakes its former December pivot lows, I like it long toward the 2021 high at approximately 1.4250.  

I believe an upside resolution represents the higher probability outcome based on broadening dollar weakness and impressive bullish momentum in the pound.

Regardless, I’m not interested in a long position until it breaks above our initial target.

And if the pound is running back to those former 2021 highs, I imagine the DXY is putting a little pep in its step as the dollar visits new lows (perhaps after sneaking a toy onto the checkout conveyor belt with a couple candy bars.)

Stay tuned!

Thanks for reading.

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