Forex Technical Update
The GBP/USD fell through a short-term rising trendline and some short-term pivots during the 4/3 US session and into the 4/4 Asian-European session. As we get into the 4/4 US session, the market has found some support at the 1.5830-1.5840 pivot area. In the 4 chart you can see this being a previous support pivot during 3/28, as well as 3/20, and 21. It was also resistance pivot on 3/9 and is in confluence with the 4H 200 simple moving average and the 50% retracement level of the 1.56-1.6066 swing.
It should be noted that downside risk goes to 1.5770-1.5780 area, 61.8% retracement and a rising trendline (seen more clearly in the daily chart). Only a break below this support cluster opens up further bearish outlook first toward 1.56. If the market remains in the rising wedge, a 5th wave up can extend toward the 1.61-1.6150 area before significant resistance again.
Going back down to the 1H chart, we see that we are developing the first 2-straight hourly bullish candles that are not spinning tops (small body more than 50% tail). This shows respect to the aforementioned support pivot, and suggests a pullback is coming. On the way up, there are a couple of key resistance areas to monitor. First the 1.2920-1.2930 level represents a previous resistance pivot, and the 38.2% retracement. The the 1.5950-1.5980 area includes the 50% retracement, 61.8% retracement and the 200 hour simple moving average as well as the 100 and 55 SMAs. A break above 1.60 can invalidate the bearish outlook.
Reward to Risk Assessment of Fading the Rally: A hypothetical entry or average entry at 1.5950 with a stop at 1.6020 and target toward 1.58 has a reward to risk parameter of 150:70, just above 2:1.
The next 2 important risk events are the Bank of England Interest Rate Meeting on 4/5 at 7:00AM EDT, and the NFP on 4/6 at 8:30AM EDT. The anticipation for this can be the reason for the pullback and also a warning of choppiness. After the NFP, we will likely be able to see if the market wants to break the rising wedge, or extend another wave up. Before then, we can still travel down toward wedge support after a pullback.
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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