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GBP/USD 1H Chart 5/7/2012 7:10AM EDT

GBP/USD

5/7 - The UK is observing May Day, a bank holiday. The price action seen in the GBP/USD is a pullback against last week's decline that went from 1.63 down to 1.6120 (near 38.2% retracement of the Apr 14-30 upswing from 1.5826 to 1.6305. Note that during the dip, the 1H RSI reading has been held under 60 while tagging 30. This is a sign of persistent bearish momentum. As we gear up for the 5/7 US trading session.

As the market pulls back, the GBP/USD is now trading near the bottom of the consolidation established during May2 -May 4. If the 1H RSI reading pushes above 60, and price action pushes above the declining trendline, we can shelve the bearish outlook and consider a sideways market. A break above 1.62 will clear the trendline and the 200-hour simple moving average. The bullish outlook is limited to about 1.6280 when it will meet a declining trendline seen in the daily chart, OR 1.63, the 4/30 high.

GBP/USD daily chart 5/7

GBP/USD

The daily chart shows that the market is coming off a 5-session decline that followed a 10-session rally. If the market does continue to extend lower, the next pivot to monitor is 1.6070 (1.6068 is 50% retracement). Below that a key support resides around 60, around the rising trendline that goes back to the Jan. low of 1.5240.

The decline in the GBP/USD is considered a correction to a bullish market, unless there is a break below the 1.60 and support clusters around it. Also, if the daily RSI pushes below 40, the bullish momentum would be lost.

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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.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.