GBPUSD Triangle Breakout (Dec 8, 2014)

The chart formation is roughly 250 pips in height so the resulting selloff could be around the same size, taking GBPUSD down to the 1.5400 major psychological level.

Stochastic is already indicating oversold conditions, which suggests that pound bears are exhausted. This could lead to a quick pullback to the bottom of the triangle, which might now act as resistance. In that case, a correction to the 1.5650 might be a better entry point for a short trade.

Aiming for 1.5400 with a 100-pip stop could yield a 2.5:1 return on risk for a short-term trade. Fundamentals support a move lower, as the latest US jobs report printed much stronger than expected results, stoking rate hike expectations for the Fed for mid-2015.

The BOE interest rate statement hasn’t sparked much movement, although traders are expecting to hear dovish remarks in the release of the policy meeting minutes. With that, GBPUSD could be poised to move lower as interest rate hike expectations for the UK central bank are likely to be pushed back.

A strong move back above the 1.5700 handle, however, could indicate that the downside move was a fakeout and that further consolidation or rallies might be seen. However, the path of least resistance as indicated by both technical and fundamental analysis is to the downside.

There are no major reports on tap from both the US and the UK today, suggesting that there are no event risks. For tomorrow, UK manufacturing and industrial production data are due and weak readings could lead to more pound selling.

By Kate Curtis from Trader's Way