Just before the weekend, I commented on how well the GBPUSD was respecting key levels. The pair took out trend line support on August 17th and then retested the area as new resistance between August 18th and the 21st.
Forty-eight hours after retesting former trend line support near 1.2900, the pair tested and bounced from support at 1.2773. This was a level I pointed out in the August 20th weekly forecast.
Judging by last Friday’s rebound from this area, a retest of the confluence of resistance at 1.2970 seemed likely. Sure enough, yesterday’s session hit a high of 1.2978 before reversing sharply to close the day 62 pips lower at 1.2916.
The bearish pin bar on the daily chart below hints at further weakness ahead. As mentioned last week, key support from here comes in at 1.2770 followed by 1.2615.
Alternatively, a daily close (5 pm EST) above the 1.2970 handle would negate the bearish outlook and expose the July 18th high at 1.3125.
The only reservation I have about Tuesday’s sell signal is the candle’s size in relation to the previous two sessions. I would prefer to see the range of the bearish pin bar to at least equal Friday’s bullish candle. Instead, it’s approximately 25 pips smaller.
That aside, the bearish formation does suggest an influx of selling pressure near 1.2970. As long as this level holds on a daily closing basis, downside targets remain exposed.
Keep in mind that Wednesday features the ADP employment change and prelim GDP figures for the U.S. As usual, the week’s main event is Friday’s non-farm payroll at 8:30 am EST.
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