It looks like we might have our answer as to the pound’s future direction.
The GBPUSD is in the process of taking out the 1.2100 area. Sellers are also challenging recent lows near the 1.2000 handle.
This was a possibility I discussed in Sunday’s forecast.
You can see how this descending channel has directed the price action for several weeks now.
You could use a close below 1.2100 as an opportunity to sell.
But I think a better approach is to see what’s happening on the 4-hour time frame.
If you do that, you will quickly notice a smaller ascending channel.
This isn’t uncommon.
Remember what occurred with the AUDUSD in late July. We had a smaller ascending channel within a larger descending one.
That setup played out perfectly and netted us over 200 pips.
So far, the GBPUSD price action looks similar.
You can also see how the pair just carved a bullish pin bar on the 4-hour time frame.
That candlestick occurred right at ascending channel support.
I’m not suggesting it’s a buy signal. Instead, a pin bar like that tells me the smaller channel below is indeed significant.
In other words, a break below support could trigger the next leg lower for GBPUSD.
And given the broader downtrend here, I’m only interested in shorts.
A close below channel support near 1.2060 followed by a rejection of the area as new resistance would pique my interest.
As I noted on Sunday, the next key support comes in at 1.1800.
Alternatively, a bounce from that 1.2060 support region would target descending channel resistance just above 1.2200.