GBPUSD has made a steep correction last week, as price sold off after reaching the 1.6500 major psychological resistance. This could be an opportunity for buyers to hop in at better prices, as the pair is finding support at a former resistance area.
Stochastic is moving higher, confirming that there is enough strength among pound bulls to push price back up. However, the oscillator is already nearing the overbought region and might indicate a pickup in selling pressure soon. MACD, on the other hand, is still climbing. This suggests that buyers could still push GBPUSD back up to its previous highs near 1.6500.
GBPUSD Potential Selloff
The recent results of the Scottish referendum is keeping GBPUSD supported for the time being, along with strong UK jobs data released last week. The BOE minutes indicated that a couple of policymakers voted to hike rates while Carney’s latest testimony showed that they might actually tighten monetary policy in spring next year.
However, potential selling momentum might lead to a break past the 1.6500 handle, which would confirm the longer-term uptrend for GBPUSD. On the other hand, a break below these current levels at the 1.6300 area of interest might be a sign that sellers are still largely in control.
In fact, a head and shoulders pattern could form if GBPUSD starts selling off from its current trading levels, as the neckline is found around the 1.6250 minor psychological support. A selloff below this area could lead to as much as a 250-pip drop, which is the same height as the chart pattern.
Take note that the US dollar still enjoys a fundamentally strong position against most of its forex counterparts, as the Fed is also inclined to tighten policy early next year if improvements in the economy are sustained. Strong data from the US could keep the pair’s rallies weak for now.
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