GBP/USD Approaches Decision Point as Rising Wedge Tightens
The British Pound has been painting a textbook rising wedge pattern against the Dollar over the past 18 months, and we're now approaching a critical juncture that could determine the pair's direction for months ahead.
Looking at the weekly chart, Cable has been grinding higher within two clearly defined ascending trendlines since bottoming near parity levels in late 2022. The lower orange support line has provided reliable buying opportunities on multiple occasions, while the upper yellow resistance line has consistently capped rallies. What makes this setup particularly noteworthy is how these boundaries have been narrowing, creating the classic wedge formation that often precedes significant moves.
The math tells the story. From the October 2022 lows around 1.03 to the current levels near 1.3448, we've seen roughly a 30% recovery. But that rally hasn't been straight up – it's been contained within this methodical wedge structure, with each bounce off support showing slightly less momentum than the previous one.
Right now, Sterling is bumping its head against dual resistance. The immediate ceiling sits at 1.36, which has proven stubborn on recent attempts. Above that, the ascending yellow trendline adds another layer of selling pressure. This confluence of resistance often creates the kind of environment where momentum stalls and profit-taking accelerates.
From a pattern recognition standpoint, rising wedges typically resolve to the downside about 65% of the time. The psychology behind this makes sense – as the pattern develops, buyers become increasingly exhausted trying to push through higher levels while sellers gain confidence at each test of resistance. The narrowing price action reflects this battle between diminishing buying pressure and building distribution.
If this wedge breaks down as expected, the measured move points toward the 1.26 support zone marked on the chart. That's roughly a 600-pip decline from current levels, which would represent a healthy correction after the substantial rally we've witnessed. More importantly, 1.26 aligns with the rising orange support trendline, creating a logical area where buyers might resurface.
But let's not get ahead of ourselves. Markets don't always read the textbook. A break above 1.36 with conviction would invalidate the bearish wedge scenario and potentially target the 1.38-1.40 zone. The key word here is "conviction" – we'd need to see sustained buying pressure, not just a brief spike above resistance.
Volume patterns will be crucial in determining which way this resolves. Rising wedges typically show declining volume as the pattern matures, reflecting the weakening momentum I mentioned earlier. A breakdown should ideally come with expanding volume to confirm the move's legitimacy.
The broader fundamental backdrop supports the technical picture. With the Federal Reserve maintaining a hawkish stance relative to the Bank of England, Dollar strength could provide the catalyst needed to trigger the wedge breakdown. Add in ongoing concerns about UK economic growth, and you have a recipe for Sterling weakness.
For traders positioning around this setup, the risk-reward is fairly straightforward. A break below the orange support line near 1.32 would signal the start of the measured move toward 1.26. Conversely, a daily close above 1.36 would negate the immediate bearish thesis and require reassessment.
The next few weeks should provide clarity on whether this two-year wedge pattern delivers its typical downside resolution or surprises with an upside breakout.
