Forex Technical Update
Previous: GBP/USD Technicals: Range Pivots (11/4)
The GBP/USD continues to be range-bound, but also formed a slightly rising short-term wedge seen in the 1H chart. Note the break above the 1.6062 high, but an immediate rejection. Meanwhile, dips have been held above a projected trendline support. The RSI movement reflects a range market as it is stuck between 40 and 60. Price action whipping back and forth the 200 period simple moving average also reflects a range-bound market in the short-term.
The 4H chart shows a market possibly forming the right shoulder of a head and shoulder pattern, with neckline near 1.5880. The market still looks bullish, trading above the 200SMA, with the RSI failing to dip below 40 after tagging 70. In fact, if the market can clear 1.6060, it might push toward 1.6165 high. A break above that high would also push the RSI above 60 and possibly above 70, indicating bullish continuation momentum.
A break above 1.6165 could be a major bullish signal toward the 1.6570-1.6480 pivots, then the 1.6614 high before the 2011 high of 1.6740.
However, the reversal scenario would come to the forefront with first a break below 1.5950 pivot. That suggests a test of the 1.5880 neckline. A break below that has a near-term support level right below it going down from 1.5850 to 1.5823. Below that we open up the 1.5680-1.5718 support cluster before the 61.8% retracement level at 1.5612. If the 4H RSI breaks below 40, we would have confirmation that the bullish momentum from the October-rally is gone. A complete reversal of the October rally is a re-test of the 2011 low at 1.5270.
Bank of England Meeting: The most important risk event for the GBP/USD this week will the BoE interest rate decision on Thursday at about 7:00AM ET. Expect a non-directional market ahead of this important meeting where we will see if new details will be provided about the central bank's QE operation. Expansion of it is likely to drag down the GBP/USD for a completion and follow-through of the Head and Shoulder.
Fan Yang CMT is the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.