GBP/USD has been consolidating, roughly between 1.7180 and 1.7060, with a spike to 1.7190 this week. This breakout attempt has been faded, which suggests further consolidation.
Where might we expect buyers on a dip?
Around 1.7060: The first area of support will be around the support/resistance pivot of 1.7060. Support here would reflect a market that is neutral to bullish in the short-term. The bullish push since June will still be in play without a significant correction.
Also, note that the RSI in the 4H chart is right around 40. After tagging 70, the ability to hold above 40 reflects maintenance of bullish momentum. We saw that in late-June.
If traders are bullish on GBP/USD, they will be looking at theis 1.7050-60 area for support.
Around 1.70: The 1.70 area is also a support resistance pivot, and is 38.2% retracement of the upswing since June. If this level is reinforced by the rising trendline from June, there would be an even higher chance we will find buyers here If the RSI in the 4H chart is also around 30 and/or shows bullish divergence, we should expect at least a bounce within consolidation, if not a continuationrally.
1.6885-1.6940: The final line of defense before the GBP/USD turns neutral-bearish, will be around the 1.69 area, between 61.8% retracement and 50% retracement of June’s rally. If the market does get to this point, our bullish outlook should be limited to the short-term in consideration of a long period of consolidation ahead.
When you look at the daily chart, you can see that this “last line of defense” is around the 50-day SMA. So even a break of this does not imply a bearish market, but like I said, it can suggest a consolidation period ahead like the one we saw in May, and Feb.-Mar, since it would break a rising trendline from Nov. 2013.
If we get this consolidation period, monitor RSI action around 40. We have seen 40 hold as support in the RSI (given some elbow space) throughout the year.
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