GBP/USD: Technicals suggest it could be headed for a potentially explosive move – Rabobank

The GBP/USD has been pivoting around the 1.30 area since mid-October and technical charts suggest that it could be fast approaching a break-out according to analysts at Rabobank.

Key Quotes: 

“Price action implies that GBP/USD is in a consolidation period. Movement in both directions is contained by two tradelines forming a triangle. The ongoing convergence of those trendlines can be compared to squeezing a spring until we cannot hold it any longer and the compressed energy is released. Neutral momentum indicators (the RSI is almost in the middle of the 30 and 70 range) resemble calm before storm. Essentially, GBP/USD may produce potentially explosive move in the coming weeks - perhaps at the end of January/early February.”

“Given that the symmetrical triangle is a continuation pattern, the odds are skewed in favour of GBP/USD breaking higher towards the December high at 1.3514. Conversely, a break below the trendline support currently at 1.2988 would be a bearish signal for cable and would favour retracement towards the November low at 1.2769.”

“Looking from a very wide perspective, it is worth pointing out that GBP/USD has been in a downside trend since 2008, as the monthly chart illustrates. Cable would have to rally well above the 1.40-1.44 area to adopt a long-term constructive view. If the UK leaves the EU without any trade agreements at the end of 2020, GBP/USD is likely to revisit the support area around 1.22.”

“It is our view that the BoE is likely to cut rates twice this year. This supports our central view that GBP/USD is likely to be trading below the 1.30 level on both a 3 and 6 month view. Our forecast that cable will end the year higher assumes the EU/UK future arrangement talks make progress by the end of 2020. Technicals, however, paint a contrasting picture.”