GBP-USD‘s weekly chart is looking very strong for several technical reasons, potentially setting it up for a major rally. To understand why, we need to go back to the week of October 23, 2023, when GBP-USD began a nine-week uptrend that ended what Elliot Wave analysts could consider the first part of a new impulse wave.
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GBP-USD moved up 664 pips before getting halted against a dominant interior trendline (black line). From there, GBP-USD spent six weeks in a choppy trading zone, retracing 310 pips before moving higher.
For analysts and traders who utilize Elliot Wave Theory, the most recent and current price action can be interpreted as the beginning of a new impulse wave, wave three, which is most often the longest and strongest of the five waves.
Leveraging Connie Brown’s Composite Index and the Detrended Price Oscillator, we can understand how successful a breakout above resistance may be.
The Composite Index incorporates a momentum calculation to the Relative Strength Index (RSI), rendering it capable of detecting divergences beyond the reach of the original RSI.
The Detrended Price Oscillator (DPO), a vintage piece from the 1970s technical analysis toolkit, excels in extracting short-term cycles from the broader trend narrative.
Indicators Support a Sustained Move Higher
Given that the DPO and the Composite Index are not at historical extremes, they support the case for a sustained move higher. This is especially true since the price closed above the 200-week moving average, which is considered an extremely significant event.
However, there’s a sizeable chunk of resistance levels ahead for the GBP-USD. That resistance zone is between the dominant interior trendline at 1.2872 and the 50% Fibonacci extension at 1.2905. Still, that doesn’t mean bears should get super happy or that bulls should get apprehensive, especially given the fundamentals.
U.S. Fed Chair Powell confirmed that if the economy plays out as modeled, a June rate cut is definitely on the table – one of the rare times Powell has given any near-definitive comment. As long as that kind of commentary from the Fed continues, weakness in the USD should be expected.