GBP/USD Testing Key 1.6820 Resistance

GBP/USD (daily chart as of May 16, 2014) retreated from the high of 1.6995 and fell into its prior narrow trading range (red shadow on chart) on May 14, which invalidated the breakout of 1.6820. As mentioned in our previous analysis, a major breakout should be strong and should not return to its prior trading range.

1.6820 is a key resistance level to watch. The pair has been unable to clear it since February 16 (first red arrow). Price made several attempts to challenge 1.6820 (red arrows), and the most recent attempt was the one that started on April 30 and ended on May 14, which traded above 1.6820 for 12 trading sessions. The pair is now trading in the support/resistance zone of 1.6725-1.6820. Note that current medium-term uptrend support (bold red line) is also around the 1.6725 level.

The pound has been in an apparent uptrend since July 2013, and the daily EMA 100 (bold blue moving average line) 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.

With the UK’s improving economy, falling unemployment, and inflation rate under control, the booming housing market now becomes the biggest concern. BOE Governor Carney will decide if further action is needed to defend against possible housing risks in the Financial Policy Committee’s meeting next month.

Support levels below:
1st support: 1.6725 (multiple highs and lows)
2nd support: 1.6650 or daily EMA 100
3rd support: 1.6540 (April 4 low)

Resistance levels above:
1st resistance: 1.6820 (major resistance)
2nd resistance: 1.6995/7000 (May 6 high/psychological level)
3rd resistance: 1.7040 (August 2009 high)