The GBP/USD, on an hourly timeframe, has been trading in a contained range between the 1.26 and 1.28 levels, with a recent pullback to the 1.26 level on 17 January 2024. This marked the start of a gradual uptrend, depicted on the chart with a regression channel.
Regression channels are powerful tools that greatly simplify the analysis process by reducing noise and giving the trader an overall sense of where the market might be heading next by simply looking at the slope of the channel. In this case, we favor an upward move for the GBPUSD since the channel is sloping upward.
However, this is not where the channel's usefulness ends. Despite the longer-term direction, we also have relative values that can act as potential buy and sell zones. For instance, we want to buy cheap (low) in an upward-sloping channel. This gives us, statistically, the greatest potential for a large risk-reward trade.
In our case today, GBPUSD is in the middle of the channel at the 1.27294 resistance level. Judging by the current candlesticks in this area, it does signal some indecision.
Next, we take a look at the other indicators on the chart to derive some possible scenarios. The 50-period simple moving average (Green) and the 100-period simple moving average (Blue) confirm an upward bias for the longer term future.
The 14-period RSI is in neutral territory, and the stochastic oscillator is overbought, signaling a potential move to the downside.
To bring all of this together, we favor a move to the upside in the longer term. However, the market is currently indecisive, probably waiting for the myriad of USD news being released later today: Advance GDP q/q, Unemployment Claims, and Core Durable Goods Orders m/m, to name a few.
This will likely cause a breakout of the current indecision. If the market starts closing lower with conviction, we might have some buying opportunities at the low of the channel or at the 1.26746 level. As long as the market maintains above the 1.26746 level, we can maintain an upward bias.
However, if the market starts closing below the crucial 1.26746 level with conviction, that will most likely invalidate the upward bias, and we can start siding with the bears, aiming for the 17 January low.
However, it remains to be seen what the news releases of later the day will hold for the battle between the bulls and bears.
Summary:
- The market exhibits a steady upward movement within a contained and low-volatility channel.
- The predominant long-term outlook is bullish, with a target set at 1.27809.
- A potential entry point is identified if the market breaks above the 1.27294 level, signaling a strong bullish trend.
- Another entry strategy is to enter during a market dip, provided it remains above the 1.26746 support level, utilizing tools like the RSI or Stochastic oscillators to guide entry timing.
