Richard Perry
Independent Analyst
GBP/USD
The near term outlook for sterling has improved considerably in the past week. On Cable, we have seen the sterling bulls turning a corrective three week downtrend, into a base pattern on a move above $1.2540. This base took on a decisive formation yesterday with another strong positive candlestick (the sixth positive close in the past seven sessions). Closing above $1.2540 implies a move now to test the resistance of the June high at $1.2810 and is a move backed by improving daily momentum. Stochastics are rising with upside potential into the 80s, whilst RSI is into the 60s this morning. A bull cross on MACD lines adds to conviction (although with Cable being in a three month trading range, this move lends less influence). Resistance at $1.2685 is important, but the key test is how the bulls react around the barrier of the seven month downtrend (which is at $1.2700 today). How the bulls react around this resistance will be a good gauge of their intent. We look to buy into weakness, with the hourly chart showing $1.2600 being the initial support whilst the neckline of the base at $1.2540 is growing in importance now. This is added to by a one week uptrend line support also at $1.2540 today. The bulls are in control of the medium term range now whilst the support at $1.2435 remains intact.
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