GBP/USD Signals Bearish Continuation with Breakout

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GBP/USD Signals Bearish Continuation with Breakout

GBP/USD has been bearish, but got itself in a consolidation, correction mode since hitting a low on the year at 1.5034. It has climbed to 1.5266 where it stalled this week. Then we started to see those strong, dominating, bearish continuation type candles in the 4H chart.

GBP/USD 4H Chart 1/16
gbpusd 4h chart 1/16
(click to enlarge)

Correction Over: In the 4H chart, we can see that there was essentially an engulfing bearish candle during the 1/15 session coming down from 1.5266 to about 1.5160. Then after some weak bullish candles, another strong bearish candle is developing as we wind down the week during the 1/16 US session.

This bearish candle broke below the 50-period SMA, returning to the bearish bias in the 4H chart. Furthermore, the 4H RSI held below 60, which reflects maintenance of the prevailing bearish momentum.

The 4H chart already shows that GBP/USD has been in a bearish trend, but when we look at the monthly chart, we can see the bearish outlook even more convincingly.

GBP/USD 4H Chart 1/16
gbpusd monthly chart 1/16
(click to enlarge)

Neutral-Bearish:

We can see that January will likely be the 7th straight monthly decline. This reflects a sideways market since 2009 when price came up and stalled around 1.70. It broke it in 2014, but was not able to hold above 1.70 after falling back in July. In this sideways assessment, there is still downside risk towards the 2009 low at 1.3514.

Note that the monthly RSI has tagged below 30 and even below 20 in 2009, then it has held below 60 for the most part, showing maintenance of the bearish momentum. So the mode is sideways – bearish, with emphasis on the bearish component at the moment.

Now, the current bearish breakout has downside risk to 1.5034 low on the year, and the 1.50 handle. Below that there is a support pivot at 1.4813, which might provide some support as well.

Below 1.48, the 2010 low will be the next support at 1.4226, especially if the monthly RSI pushes below 30.

Let’s limit the bearish outlook to there fore now instead of all the way to the 2009-low of 1.3514 which resulted from the 2008 financial crisis.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.