GBP/USD has just completed its Wave 5 on the 4-hour uptrend, indicating that a reversal might be in the cards. On this time frame, the pair has broken below the Fibonacci retracement levels drawn on the latest swing high and low, suggesting that the uptrend is already exhausted.
Take note though that stochastic has already reached the oversold zone on the same time frame, which means that there might be a small correction before the pair resumes its drop. Using the Fibonacci tool on a shorter-term time frame such as the 1-hour chart can help identify how long the pullback could last and when the selloff might carry on.
Wave 1 spanned 1.5475 to 1.6230, with a correction taking place back to 1.5900. From there, Wave 2 reached until 1.6500. With dollar demand going strong thanks to the latest Fed statement and its impact on GBP/USD, the pair might be on track to erase most of its gains for this year.
GBP/USD Technical Forecast
Should the reversal be confirmed by a deeper decline, GBP/USD could be on the way to test the previous lows around the start of Wave 1. Do take note though that UK fundamentals have been relatively strong, as the economy added more jobs than expected for February. In addition, the BOE had a unanimous vote to keep interest rates and asset purchases unchanged for now. The inflation outlook for the UK leaves the country as one of the most likely to start hiking rates among the major economies, aside from New Zealand.
On the other hand, should the uptrend still stay intact, the pair might make its way up to test its recent highs at the 1.6800 major psychological level. Failure to make new highs beyond this point would show that buying pressure is weakening and that sellers are set to take control soon. Bear in mind though that the pair is just testing a rising trend line on the daily time frame and it may take a huge catalyst before this trend is broken.
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