GBP could test levels around $1.30

Sterling could test levels north of $1.3000 as positioning and a short-gamma market at current levels may add momentum to bullish technical developments.

The price of GBP rose the most for the last three months, and hit levels around $1.2900 for the first time since Oct. 3.

Price action after May’s announcement of snap elections was driven by a short-squeeze on long-term positions, traders said.

Large part of trailing stop-losses have been triggered on holdings from leveraged names with an average price above $1.3000, with additional ones seen now above $1.3050 and $1.3100.

The sharp move has caught the market off guard, diminishing the need for gamma hedging.

Most expires for the following 30-day period stand below $1.2800, DTCC data show.

Technical analysis

On the weekly chart, a close above $1.2798 opens room for test of 55-Weekly MA at $1.3014; the MA has effectively capped the pair since September 2014.

Next resistance comes near $1.3070, where lies the weekly trendline starting from July.

DeMark TD sequential shows a potential sell setup has four more weeks to be completed, while nine-week RSI has yet to enter overbought levels.

 A close above $1.2798 would also negate bearishness on the Bloomberg Trender Indicator, which would  then turn bullish for the first time since August 2015.

On the daily, MACD shows bullish momentum remains firm while Elliot Wave shows we are currently at wave 3 of a move that initiated following the October flash crash.

Source: Bloomberg

Junior Trader Ivan Ivanov

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