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Technical analysis - Sell the British pound on weakness

GBPUSD Tech analysis by Simon Kazinsky on 15:59 December 05, 2019 EST

The British pound has been strong lately, managing to recover against the dollar from its double bottom around 1,20 made in the second part of August to comfortably above the 1,30 level it trades as we end the decade.

But zooming out we can see that, despite the 8% increase in just a few months, this is a fairly mild recovery in the context of the larger acute downtrend that has dominated the decade.

In fact, the 4 hour chart shows the pair trades now right at the top of the textbook descending channel and, in principle, the long term trend should guide our bias. GBPUSD has been traditionally correlated with risk on periods in the stock market so if we start seeing weakness on the later and combined with the rejection of the trendline should give us a strong signal it is time to sell hard.

In this context, I am looking at the 2,000 (4h) Moving average that has also capped most of the descend but that it is now below the current price. Breaking below it will give us further support to our bias.

On the meantime the only reason to doubt the bearish case, aside from the short term momentum, is that retail traders are now short the pair according to multiple brokers in a ratio of 57 to 43.

It is therefore, time to keep GBPUSD on the radar and await for the multiple signals that the current uptrend is coming to an end.