GBP/USD Breakout Coming

GBP/USD Breakout Coming

GBP/USD Breakout Coming

After consolidating for the past week, GBP/USD is gunning for a breakout and we think the break could be to the upside. The U.S. dollar is extremely overbought and prime for profit taking ahead of this week’s U.S. non-farm payrolls report. Meanwhile UK Chancellor Hammond announced more borrowing and a new National Productivity Investment Fund of 23 billion pounds aimed at infrastructure spending. This announcement caught the market by surprise and sent sterling sharply higher versus the euro and if the dollar pulls back next week as well, it will benefit GBP/USD. U.K. PMI manufacturing numbers are scheduled for release next week and we think they will be strong providing support for our case that a GBP/USD breakout could be to the upside.

Technically, GBP/USD is trading in an extremely narrow range between the 20 and 50-day SMA. These moving averages along with the edges of the triangle that we have drawn are the references for a breakout. If GBP/USD rises above 1.2525, it should be headed above 1.26. If it breaks below 1.2350 maybe even 1.24, it is headed towards 1.22.

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