British pound technical outlook: GBP/USD eyes ascending triangle as retail traders go long

British pound eyeing Ascending Triangle

The British pound has been consolidating against the US dollar in recent weeks. Taking a closer look, it appears that GBP/USD could be forming an Ascending Triangle chart formation. The outer layer of the ceiling appears to be at 1.1496. Meanwhile, the rising floor of the triangle has its roots from the September low – see the daily chart below.

The direction of Sterling’s breakout from the triangle could be key for determining the coming trend. Confirming a breakout under rising support places the focus on 1.1061 before the October 12th low at 1.0924 kicks in. Such an outcome would open the door to extending the dominant downtrend since the beginning of this year.

That places the focus on the 1985 low at 1.0520, as well as the all-time low of 1.0354. In the event of a breakout higher instead, keep a close eye on the falling trendline from February. That could reinstate the dominant downtrend. If not, key resistance above seems to be the September high at 1.1738 before the 1.2213 – 1.2293 zone from July kicks in.

GBP/USD daily chart

Four-hour chart

Zooming in on the four-hour timeframe below can give us a better picture of how the Ascending Triangle is taking shape. Sterling is quickly running out of room to consolidate between the ceiling and the upward-sloping floor. Breaking under the floor exposes 1.1058 before 1.0922 kicks in. Watching these levels would likely offer preliminary directional signals.

British pound sentiment analysis - bearish

According to IG Client Sentiment (IGCS), about 61% of retail traders are net-long GBP/USD. IGCS tends to function as a contrarian indicator. Since most traders are net-long, this hints that prices may continue falling. This is as upside exposure increased by 20.91% and 23.20% compared to yesterday and last week, respectively. With that in mind, the combination of current sentiment and recent changes offers a stronger bearish contrarian trading bias.

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.