Just yesterday I mentioned that the GBPUSD could produce a favorable setup on a retest of the post-Brexit low at 1.2790. And while that idea is still in play there is a 4-hour ascending channel that could also trigger a compelling opportunity here.
On its own, an ascending channel does not have bearish implications just as a descending channel doesn’t have bullish implications. This notion often gets complicated when we think of something like a bull or bear flag.
For example, a four-year ascending channel isn’t necessarily a bearish formation. During those years you would want to look for buying opportunities to join the trend. Any attempts to fade rallies wouldn’t likely go your way.
In the world of trading, everything boils down to price and time. So the same formation that represents a bullish trend on the weekly or monthly chart can signal exhaustion on the 4-hour or daily time frames.
In the case of the GBPUSD, we have a downtrend that has so far spanned more than two years. Since July of 2014, the pair has given up a massive 5,000 pips; a stark reminder of where things stand.
So when the pair carves out a 4-hour ascending channel within a multi-year bearish move, it’s a good idea to begin watching for selling opportunities.
With this in mind, there are two scenarios I’m keeping an eye on at the moment. The first involves a retest of the post-Brexit low at 1.2790 as new resistance. With the right price action, this could make for a compelling setup.
The second scenario is a 4-hour close below channel support. In the event the pound is unable to retest the 1.2790 handle, I would consider shorting the pair on a break of the support level you see in the chart below.
Regardless of what happens here, the first test for sellers would be the mid-October highs at 1.2326. A break below that would expose 1.2090 followed by the multi-year low at 1.2000.
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