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Welcome to TA of the Day (TAOTD)!

Is a GBP/USD pullback imminent?

Here’s the daily chart:

GBP/USD | 2024-07-8

Using strictly technical analysis, let’s analyze today’s chart.

Technical Analysis

Moving Averages:

  • 200-day SMA: Positioned around 1.2578, this serves as a significant support level. The price is currently above this level, indicating potential support.
  • 50-day SMA: Positioned around 1.2684, also acting as support. The price is above this level, reinforcing a bullish sentiment.

If you’re new to moving averages, read our School of Pipsology lessons on moving averages.

Bollinger Bands:

  • Upper Band: The price is near the upper band at 1.28311, which can indicate potential overbought conditions. That said, a strong trend can cause the price to remain near or even exceed the upper band for extended periods.
  • Middle Band: The middle band (20-day SMA) at 1.25881 can act as support during a pullback.

If you’re new to Bollinger Bands, read our School of Pipsology lessons on Bollinger Bands.

Stochastic:

  • Stochastic Oscillator: The current reading is around 82.20/83.09, indicating that the market is in the overbought territory. This suggests a potential for a pullback or consolidation.

If you’re new to Stochastic  read our School of Pipsology lessons on Stochastic.

Key Observations

Price Action:

  • Since the end of April, the price has been trending upwards, consistently making higher highs and higher lows.
  • The current price is near the upper Bollinger Band and its previous swing high.

Support and Resistance Levels:

  • Immediate support at the 50-day SMA (1.26844) and the middle Bollinger Band (1.25881).
  • Resistance is likely around the recent high near 1.28456. A breakout above this level could signal further bullish momentum.

Stochastic:

  • The oscillator in the overbought region suggests that the buying pressure might be easing, and a reversal or consolidation could be on the horizon.

Potential Trade Scenarios

The following trade scenarios are provided solely for educational purposes. Since they don’t include full risk management practices, they are not intended to serve as actual trade recommendations, but merely food for thought to help you generate your own trade idea.

Long Bias:

  • Consideration Point: Consider a long position if the price pulls back to the 50-day SMA (1.26844) or the middle Bollinger Band (1.2588) and shows signs of support, such as a bounce or a failed breakdown (“fakeout“).
  • Invalidation Point: Consider a stop-loss below the middle Bollinger Band around 1.2581 to manage risk.
  • Potential Target: Look for a move towards the recent high at 1.2845 and potentially higher if the uptrend continues.

Short Bias:

  • Consideration Point: Consider a short position if the price fails to break above the resistance level at 1.2845 and shows signs of bearish momentum, such as continued overbought conditions in the Stochastic Oscillator.
  • Invalidation Point: Consider a stop-loss above the recent high at 1.2845 to manage risk. This level is crucial as a break above it would invalidate the bearish setup.
  • Potential Target: Initial target could be the 50-day SMA (1.2684) or the middle Bollinger Band (1.2588). If bearish momentum continues, look for further downside towards the lower Bollinger Band around 1.2270.

TAOTD Summary

  • Trend: With price above both its 50 and 200 SMA, the trend has been bullish. A break above its most recent high would be very bullish.
  • Key Levels: Support at 1.2684 and 1.2588, resistance at 1.2845.
  • Momentum: Overbought conditions indicated by Stochastic suggest a potential for a pullback, which would provide an opportunity for bulls sitting on the sideline to join the uptrend.