Forex Video Briefing (10/15) – Sell GBP/USD on a Rally
First of all, when we look at the GBP/USD 4H chart, we should note that it has just completed a continuation head and shoulders pattern. We probably learned about the H&S pattern as a price top after an uptrend, but in a downtrend, it is a bearish continuation signal. Now, that price has continued lower, a pullback can be seen as a test of this pattern to see if the bearish trend will hold.
We are already seeing strong selling as price tests the neckline of this H&S pattern. Let’s not read too much into this reaction. If price does not reverse dramatically below 1.59, there is still some near-term upside risk toward the 1.61 handle, which is like the lower part of the shoulders, and a falling trendline. If price approaches 1.61 and stalls, while the 4H RSI also approaches 60 and stalls, we should be looking for a bearish continuation attempt. A break above 1.6150 might shelve the bearish outlook for a sideways consolidation, with some further short-term upside.
To the downside, GBP/USD doesn’t have much room until the 1.5854 support pivot seen in the weekly chart. Then, we should look at the 1.57-1.5750 area, which was a previous resistance, as a possible next support level.