Over the weekend, I mentioned the trend line on GBPUSD that halted last week’s advance. At the time, it was unclear as to whether the level would trigger another lower high or simply delay a move higher.
However it appears that we may now have our answer…
In order to fully appreciate what has happened over the last few weeks, we have to take a look at the broader picture. The chart below shows how the price action since June has carved out a series of lower highs and lower lows.
We certainly don’t need any fancy indicators to tell us that this is a sign of weakness. In fact watching how the highs and lows of a market play off of each other can be one of the most telling price action indicators available.
If we take the chart above and add our trend line from the May low, we start to get a sense of what has happened recently.
After acting as support for five months, the trend line from May reversed its role last week when it rejected the advance between September 17th and 18th.
The follow-through thus far is an indication of continued weakness, which validates the idea that the pair is in the process of carving out another lower high. In which case, if the pattern holds true, we should begin to see another lower low develop over the coming days and weeks.
So what is the game plan, you ask?
As usual, our key levels will gauge where we look for selling opportunities. If today’s price action holds up, the 1.5330 level will become new resistance.
To the downside we have an even more significant level at 1.5170, an area that has played a role since January but more recently supported prices in both June and September.
All in all, the price structure since June hints at the idea that lower prices are likely over the coming weeks. As long as these lower highs and lower lows persist, we can watch for selling opportunities at key levels of support-turned-resistance.
Summary: Watch for a selling opportunity on a retest of 1.5330 as new resistance or on a daily close below 1.5170. Key support from current levels comes in at 1.5170 and 1.4980. Alternatively, a daily close back above 1.5330 would call into question the idea that lower prices are likely over the short-term.
