GBP/USD – Trend Reversal Likely

If we look at the daily chart of GBPUSD, we can see a precise formation of a morning star reversal pattern following a steady downtrend. The bullish engulfing candle of Friday's session is a result of the UK prime minister, Theresa May announcing that she will resign following failed Brexit negotiations with EU leaders and the UK Parliament. Traders on Friday saw the resignation of Theresa May as positive outcome amidst all the Brexit chaos, and subsequently, the GBP gained against the USD. This reversal pattern indicates to us a change in sentiment and that we are likely to see higher prices to come. Looking at Tenkan Sen we can see that selling momentum is strong with the downward sloping Tenkan Sen in the short term, but it is worth taking into consideration the lagging nature of moving average indicators which wouldn't have priced in Theresa Mays resignation. Therefore, more emphasis should be placed on fundamental reasons on this trade then technical analysis and it would be worth exploring this trade on lower time frames. Looking at Kijun Sen, we can see that in the medium term, it is likely that the price action will range.

Looking at the 4-hour chart of GBPUSD we can see that Friday's session closed on a candle above Kijun Sen which is very likely to provide support for the price. Tenkan Sen is upward sloping suggesting to us that the buying momentum is still strong, Kijun Sen, however, is flat suggesting some ranging price action is likely. Some consolidation around this support level should provide a stronger foundation for a trending upward move. Should the market open with the price gapping below Kijun Sen our outlook would be invalidated. However, if the price remains above the support provided by Kijun Sen, an upward move is very likely and the Tenkan Sen and Kijun Sen cross nearer the Kumo could signal a buy position.