GBP/USD Breakout Above Key 1.6820 Level

GBP/USD (daily chart as of May 7, 2014) broke out of a small trading range (red shadow on chart) on April 30, with a weaker-than-expected bullish candlestick. Price then immediately returned to the range on May 2, but managed to close above the key 1.6820 resistance level.

Yesterday, the pair climbed even higher and touched a fresh high of 1.6995, with a bullish candlestick that was stronger than the one on April 30. Watch closely the follow-through price action against 1.6820. Technically, a major breakout should be strong and should not return to its prior trading range.

The pound has been in an apparent uptrend since July 2013, and the daily EMA 100 has been serving as strong support since August 2013 (green arrows on chart). Only a breach of the daily EMA 100 would change the longer-term view of the currency pair.

The Bank of England will announce its monetary policy decision tomorrow. Sterling has been the best performer among its peers in the past year with the UK’s improving economy and falling unemployment, which in turn has raised speculation about a possible sooner-than-expected interest rate hike.

Support levels below:
1st support: 1.6820 (key resistance/support level)
2nd support: 1.6725 (multiple highs and lows)
3rd support: daily EMA 100

Resistance levels above:
1st resistance: 1.6995/1.7000 (May 6 high/psychological level)
2nd resistance: 1.7040 (August 2009 high)
3rd resistance: 1.7130/85 (late 2005/early 2006 low)