Sterling has reached its highest level against the U.S. dollar in about two and a half years and can also be doing well against the euro.

The pound’s rally is basically driven by speculative bets on rates of interest based on expectations that the Bank of England (BoE) will maintain higher rates of interest for an extended period in comparison with the Fed and ECB.

But this makes sterling vulnerable to shifts in monetary policy expectations, and this surge could quickly unravel in markets still unsettled by early August’s turbulence.

Moreover, sterling’s strength is being supported by economic difficulties within the eurozone and emerging challenges within the U.S., coupled with the Bank of England’s reluctance to totally commit to lowering rates of interest.

Although GBP/USD has made notable gains, analysts warn that the currency is susceptible to significant volatility as a consequence of continued speculative rate of interest bets and upcoming events equivalent to is U.K Chancellor Reeves’ first budget at the tip of October and U.S. elections in November.

Fundamentals are cautiously bullish but what about GBP/USD’s technical outlook?

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Welcome to TA of the Day (TAOTD)! 👋

Let’s give attention to the present technical setup of the GBP/USD based on the 4-hour chart:

📈 Technical Evaluation of GBP/USD 4-Hour Chart 

Let’s analyze GBP/USD using key technical evaluation concepts covered in our forex course.

Easy Moving Averages (SMAs):

• 20-period SMA: Positioned around 1.3206. The value is near this level, showing short-term consolidation. The upward slope indicates that the general short-term trend continues to be bullish.
• 50-period SMA: Positioned around 1.3133. The value is currently above this level, indicating continued medium-term bullish momentum. The upward slope suggests ongoing buying pressure.
• 200-period SMA: Positioned around 1.2920. The value is well above this level, indicating strong long-term bullish momentum. The upward slope confirms the long-term trend stays intact.

Relative Positioning of Moving Averages:

• The 20-period SMA is above the 50-period and 200-period SMAs, indicating a robust short-term bullish trend inside the broader bullish context.
• The 50-period SMA can also be above the 200-period SMA, reinforcing the medium-term bullish trend.
• This alignment of the moving averages suggests that the general momentum is strongly in favor of the bulls across multiple timeframes.

Parabolic SAR:

• The Parabolic SAR dots are positioned above the present price, signaling a possible reversal or correction within the short term.
• The present positioning suggests that the bullish momentum may be weakening, resulting in a possible pullback.

Stochastic:

• The Stochastic Oscillator is currently within the oversold region, with the %K line at 22.56 and the %D line at 19.93.
• This means that the pair may be nearing the tip of its bearish correction and could possibly be due for a bullish reversal soon.
• But it surely’s essential to attend for confirmation before acting on this signal.

🕵️ Key Observations

Price Motion:

Let’s analyze the value motion of GBP/USD from the beginning of the chart:

1. Initial Phase (Early August):
   • The chart begins with the value around 1.2850.
   • There’s initial volatility with price swings between roughly 1.2750 and 1.2850.
   • This era shows a slight downward bias with lower highs and lower lows.
2. Bottom Formation (Around August 10-11):
   • The value reaches a low point around 1.2700-1.2720.
   • This marks the tip of the initial bearish phase and the beginning of a reversal.
3. Sharp Reversal (Mid-August):
   • From the low point, there’s a dramatic and swift upward movement.
   • The value breaks above previous resistance levels with strong momentum.
   • This move is characterised by long green (bullish) Japanese candlesticks, indicating strong buying pressure.
4. Regular Uptrend (Mid to Late August):
   • After the initial sharp rise, the value continues to climb in a more measured manner.
   • The uptrend forms a transparent pattern of upper highs and better lows.
   • Each pullback is often shallow and quickly followed by further upward movement.
   • The value stays consistently above the rising 20-period SMA during this phase.
5. Acceleration (Late August):
   • Towards the tip of August, the uptrend accelerates.
   • There’s one other series of strong bullish candles pushing the value to latest highs.
   • The pair reaches its peak around 1.3270-1.3280.
6. Recent Pullback and Consolidation (Current):
   • After reaching the high, there’s a pullback.
   • The value retreats from the height, forming several red (bearish) candles.
   • This pullback is deeper than previous ones within the uptrend.
   • Probably the most recent candles show some consolidation across the 1.3170-1.3180 level.
   • The recent price motion suggests a possible pause within the uptrend or a possible correction.

Market Structure Evolution:

Let’s describe how the market structure has evolved over time:

1. Initial Bearish Structure (Early August):
   • The chart begins with a bearish structure.
   • Price is making lower highs and lower lows.
   • Price is below the visible moving averages, indicating bearish sentiment.
2. Bottoming Process (August 6-8):
   • The bearish momentum slows down.
   • Price starts to consolidate across the lows.
   • This represents a possible change in market structure, signaling a possible end to the downtrend.
3. Bullish Reversal (Mid-August):
   • A pointy reversal occurs, changing the market structure dramatically.
   • Price breaks above recent resistance levels and the short-term moving averages.
   • This marks the primary higher high and better low, signaling a possible trend change.
4. Establishment of Bullish Structure (Mid to Late August):
   • The pair starts consistently making higher highs and better lows.
   • Price stays above the 20-period SMA, which now acts as dynamic support.
   • The moving averages begin to align in a bullish manner (short-term above long-term).
   • An upward channel starts to form, providing a transparent structure for the bullish trend.
5. Strengthening Bullish Structure (Late August):
   • The uptrend accelerates, with price making sharper moves to the upside.
   • The gap between the value and the longer-term moving averages (50 and 200 SMAs) widens.
   • The upward channel becomes more defined.
   • Pullbacks turn out to be shallower, indicating strong bullish sentiment.
6. Peak and Initial Pullback (End of August):
   • Price reaches a latest high, marking the height of the present bullish structure.
   • A pullback begins, which is deeper than previous corrections within the uptrend.
   • This represents the primary significant challenge to the established bullish structure.
7. Consolidation Phase (Current):
   • Price enters a consolidation phase after the pullback.
   • The market structure is now less clearly defined.
   • The bullish structure is being challenged but not yet broken.

Support and Resistance Levels:

• Immediate support: Around 1.3170 (current price level and 20 SMA)
• Next support: 1.3130 (50 SMA)
• Strong support: 1.2920 (200 SMA)
• Immediate resistance: Previous high around 1.3260 and and the psychological level of 1.3200.

Key Swing Points:

• Swing low: Early August around 1.2665.
• Swing high: Late August around 1.3260.

Potential Chart  Patterns:

• The recent price motion could possibly be forming a bull flag pattern, with the flagpole being the sharp rise and the flag being the present consolidation.
• That is is often a trend continuation pattern.

🤔 Potential Trade Scenarios

Is GBP/USD a buy or sell?

Long Bias:

• Consideration Point: Consider entering an extended position if the value finds support near the 20-period SMA at 1.32060 and shows signs of a bullish reversal, equivalent to a crossover within the Stochastic Oscillator or the Parabolic SAR flipping below the value.
• Invalidation Point: Consider setting a stop-loss below the 50-period SMA at around 1.31300 to administer risk.
• Potential Goal: Search for a move back towards the recent high around 1.31890 or higher if the uptrend resumes.

Rationale: The general trend is bullish, and the oversold Stochastic suggests a possible for a bullish reversal. The secret is to attend for confirmation from the value motion and indicators just like the Parabolic SAR.

Short Bias:

• Entry Point: Consider entering a brief position if the value fails to carry above the 20-period SMA and the Parabolic SAR stays above the value, indicating continued bearish pressure.
• Stop-Loss: Consider setting a stop-loss above the recent high at around 1.32100 to administer risk.
• Goal: Initial goal could possibly be the 50-period SMA at 1.31336, with further downside potential towards the 200-period SMA at 1.29204.

Rationale: The Parabolic SAR above the value and the potential for further downside indicated by the consolidation suggest a possible short-term correction. The oversold Stochastic does require caution as a reversal could occur.

📝 TAOTD Summary

• Current Position: The value is in a robust uptrend but currently consolidating around 1.3160. The Parabolic SAR indicates potential bearish pressure, while the oversold Stochastic suggests a possible bullish reversal.
• Trend: The general trend is bullish, with the value above the 200-period SMA, confirming long-term strength. The short-term trend is consolidating, with potential for either a continuation of the uptrend or a short-term correction.
• Key Levels: Support at 1.3130 (50-period SMA), with resistance on the psychological level of 1.32000 (and 20-period SMA).
• Momentum: The Stochastic Oscillator indicates oversold conditions, while the Parabolic SAR suggests potential bearish momentum within the short term.

Overall, the value motion shows a transparent transition from a bearish to a strongly bullish trend, followed by a recent pullback.

The movement has been quite directional, with the uptrend being particularly strong and chronic.

The recent pullback could possibly be seen as a standard correction inside an uptrend or potentially the beginning of a more significant reversal, depending on how price behaves around current levels and key moving averages.

The Stochastic oversold condition and the potential bull flag pattern suggest that the uptrend might resume soon, however the bearish signal from the Parabolic SAR indicates caution within the very short term.

While the present structure is bullish, and is now in a phase that would determine whether the bullish structure continues or if a more significant correction or reversal is in store.

The key levels to observe for maintaining the bullish structure are the recent swing lows and the 50-period SMA.

A breakdown below these could signal a change within the medium-term market structure.