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Jun 01 - 11:55 PM

GBP/USD - COMMENT-Potential Key Day Reversal Leaves Sterling Vulnerable

By Andrew M Spencer  —  Jun 01 - 09:53 PM

Wednesday's close will be key for the next move in sterling. If GBP/USD ends below Tuesday's 1.4146 low, that should trigger a key day reversal and significant correction, while a firm close would leave the primary uptrend in place.

Sterling saw a flurry of activity in Asia on Tuesday, clearing out stops and option interest around the prior February 1.4240 top, and reaching a fresh 2021 high at 1.4250. London reacted by booking profits on popular longs, and GBP/USD closed near its 1.4151 session low.

The fall recorded a bearish outside day, which due to the fresh trend high, would become a bearish key day reversal on a close below Tuesday's 1.4146 base.
A key day reversal is unusual and considered to be a strong signal that a trend is mature and ready for a correction.

Initial support comes in at the 1.4113 rising 21-day moving average, which has been a base on the way up, then 1.4028, 38.2% retracement of the April-June rise.

Positioning is important for the often volatile pound, and last week's IMM data showed heavy short USD positions and increasing GBP longs, which could make sterling susceptible to a correction nL2N2NF2MG.

The daily technical signals remain positive with 5, 10 and 21 DMAs edging higher, supporting the primary uptrend.

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Source:
Refinitiv IFR Research/Market Commentary

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