Like several other currency pairs this month, GBPUSD has been a tough one to figure out. Just when it looked as though the buying spree on March 17th would put an end to recent losses, the pair plummeted 370 pips over the following three sessions.
The question that has been on everyone’s mind (or, at least, my mind) since the late February bottom is, do we get a reversal out of this pattern or is it merely consolidation before the next leg lower?
I love trading reversal patterns such as the inverse head and shoulders. And at the moment, the GBPUSD price structure that has been forming since late January fits the description.
However, it only qualifies as a potential reversal pattern at the moment. Whether or not it manages to close above the neckline likely depends on the outcome of tomorrow’s NFP.
If it does close above the neckline to confirm the pattern, one level to keep a close eye on is trend line resistance that extends from the August 2015 high. A break above that would allow the pair to reach much higher prices, possibly toward the measured objective of the inverse head and shoulders at 1.5180.
Alternatively, it seems the level to break to invalidate a reversal here is 1.4050, an area carved out by the last two swing lows. A close below it would likely set the pair up for further losses.