GBPUSD performs U-turn on Wall Street open

As mentioned in the morning commentary, traders finished the New Year’s celebrations and all markets are now open. This fact definitely helps with liquidity and, as we can see on the moves on the Dollar, also with the volatility. In this analysis, we will focus on the GBPUSD currently performing a very interesting U-turn.

Christmas-NYE trading on Cable was quiet and the price managed to form the pennant formation (black). Today, during the early hours of the European session, the price managed to break the lower line of the pennant, which, in theory, gave a sell signal. The drop was fast but not deep. The price stopped on the first horizontal support on the 1.194 (orange). The level had first been a key resistance in the middle of November, to be confirmed as a support at the end of that month. The support worked today as well. The price reversed sharply and is now trading back inside of the pennant. In theory, this drop is a false bearish breakout (yellow) and should be considered a strong signal to buy.

I would, however, be careful with going long now. A safer option would be to wait for the breakout of the upper line of the pennant and the mid-term down trendline (green), which should seal the deal for buyers. As for now, with that bounce, sentiment is positive but the proper buy signal is not yet confirmed.