GBP/USD Breaks Above Long-Term Resistance

10/22/2009 12:01 am EST

Focus: FOREX

James Chen

Chief Technical Strategist, FX Solutions

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(Price on 1st pane, Slow Stochastics on 2nd pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; 50-period simple moving average in light blue.)

Price action on GBP/USD, a daily chart of which is shown, has just made a clean breakout above a long-term downtrend resistance line extending from the July 2008 high. This breakout is a significant first step in possibly breaking out of the prolonged consolidation that has characterized this currency pair since June of this year.

Whereas other major dollar-based pairs are currently entrenched within very clear and strong medium-term trends (uptrend on EUR/USD, downtrend on USD/JPY, downtrend on USD/CHF, downtrend on USD/CAD, and uptrend on AUD/USD), the overall trend on GBP/USD is presently unclear. If the current bullishness in the pair continues, GBP/USD should join the other pairs in the general trend of dollar weakening. A major near-term upside target resides in the 1.6740 price region, which is the approximate shoulder top of the current consolidation.

A breakout above that level would confirm a medium-term uptrend continuation, and should target further resistance around the top of the failed head and shoulders near 1.7040. Strong downside support currently continues to reside in the 1.6100 price region.

By James Chen, chief technical strategist, FX Solutions

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