GBP/USD Trading in a Rising Wedge Pattern

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GBP/USD Trading in a Rising Wedge Pattern

Backdrop: Since finding support at 1.4950-1.50, GBP/USD been in a bullish correction. When it broke above the 1.52 resistance and then treated it as support, cable started another phase in the bullish correction that has now brought the pair to around 1.5450 during the 2/19 session.

GBP/USD 4H Chart 2/19
gbpusd 4h chart 2/19
(click to enlarge)

Bullish Technicals: In the 4H chart, we can see price holding above the 200-, 100-, and 50-period SMAs, which are also shifting into bullish alignment. The RSI has tagged 70 and has held above 40, which shows maintenance of the bullish momentum. These are bullish signs, but when we look at the structure of the rally so far, we see vulnerability.

Consolidation Pattern: A rising wedge during a downtrend is usually seen in the context of a correction, and if the wedge is broken, the mode would turn back to bearish. A break below 1.5350 could start this process. Then failure to push back above 1.54 would further confirm bearish continuation.

However, if price remains bullish within the rising wedge, there is still further room to rally before key resistance around 1.56.

GBP/USD Daily Chart 2/19
gbpusd daily chart 2/19
(click to enlarge)

Price Bottom: On the daily chart, we can see that price is bottoming but the prevailing downtrend stills intact except for the fact that price has cleared the 50-day SMA, and the daily RSI pushed above 60.

Resistance: Note that there is a support/resistance area as well as the 100-day SMA around the 1.56 handle. If the current correction approaches this are, and there is a bearish divergence in the 4H chart with the RSI, be ready for a bearish continuation attempt at least to test the 1.52 level again. Then, if 1.52 fails to hold as support, the bearish trend would likely continue with pressure on the 1.4950-1.50 lows and with risk of extending lower.

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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.