Since the August 3rd bearish pattern that formed at 1.3250 resistance, the GBPUSD has lost nearly 400 pips. Sellers took a breather last week just above the 1.2970 handle, but even that level gave way this past Monday.
Unless you’re looking at the price action since March, the pair seems to be hovering between 1.2770 support and 1.2970 resistance for no good reason.
But if we go back to the March 14th swing low, the bids near 1.2880 start to make sense. There’s a trend line that connects that low to the session low from June 21st – that’s what is supporting today’s prices.
This is an excellent example of why I favor the daily charts that use a New York close. Even the 4-hour chart doesn’t do this trend line justice. In fact, those who attempted selling yesterday’s break on the intraday charts have most likely been stopped out by now.
Another significant observation here is that the 10 and 20 EMAs are still approximately 100 pips above the current price. The overextension increases the likelihood that we’ll see further consolidation before the next leg lower materializes.
It’s going to take a daily close below trend line support near 1.2880 to get me interested in a short position. Key resistance comes in at 1.2970 and could offer a selling opportunity if tested, but securing a favorable risk to reward from there would be difficult.
If sellers manage a daily close (5 pm EST) below this trend line, the next key support comes in at 1.2770. This area served as a pivot between April 19th and June 19th. A daily close below that would pave the way for a move toward the June low near 1.2615.
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