On Monday, the price managed to climb to the highest levels since the 23rd of November. This optimism is a result of the latest developments from the Brexit pit, where according to Theresa May, a ‘no Brexit’ option is more probable than a ‘no deal’ option. Fundamentals are very much in line with the technical analysis, and this situation is always more than welcomed by Forex traders.
As I am primarily a technical trader, I will focus on this type of analysis. GBPUSD is largely influenced by the double bottom formation from December and January. This reversal formation always has a neckline and the breakout of that neckline is a trigger to go long. In our case, this neckline is the horizontal area around 1.2815 (orange). That resistance was broken on Friday and that was the first sign of optimism. Later, the broken resistance was successfully tested as a support and that proved the buy signal.
From the price action point of view, the buy signal here is very strong. Additionally, it has a great risk-to-reward ratio. In theory, a stop loss order should be placed below today’s lows and the take profit is on the black line connecting long-term lower highs. That gives us a potential profit which is three times bigger than the potential loss. Positive sentiment will remain as long as we are above the orange line. Should the price drop below that support it will create a false breakout pattern and will be a legitimate signal to go short.