GBP/USD has been trading in a consolidation range since mid-November after tagging a low on the year around 1.5586. It has been trading above that low and under the 1.5732 resistance as we can see in the 4H chart.
Today (11/26), GBP/USD is signaling a bullish correction. Let’s look at the clues from the 4H chart.
1) Price has broken above the consolidation range resistance of 1.5737.
2) It has broken above a falling trendline from late October, which represented the latest down swing.
3) The 4H RSI is breaking above 60, showing loss of the bearish momentum established during this past month.
4) Bullish candles have been larger than bearish candles since mid-November.
Pullback after the Breakout: Now, following the current bullish breakout, we can expect some pullback when the RSI approaches 70 and as price approaches 1.58 psychological level, which was also where a previous support pivot is around. If price falls but holds above 1.57, and above a couple of rising speedlines seen in the 4H chart ,the bullish correction scenario is still valid. A break below 1.57 however would likely be a sign of bearish continuation, or at least a flattening of the correction to simply a sideways consolidation. Still there would be heavy bearish bias due to the prevailing downtrend.
Bullish Correction; Target: Now, let’s say price does hold above 1.57 and extends higher. Where should we expect it run up to? Well, the width of the broken range is about 150 pips wide. 150 pips above 1.5740 (range resistance rounded up) targets the 1.5890 area. When we look at the 4H chart, we can see that 1.5890-1.5910 is indeed a support/resistance pivot, the 200-period SMA, and of course 1.59 is a psychologically sticky level. We should expect sellers here especially if the RSI shows any bearish divergence relative to price action.
(click to enlarge)
Falling Trendline: Remember, the prevailing trend is still bearish, and when we look at the daily chart, we can see that as price approaches 1.59, it will be testing falling trendline. Perhaps, we should start looking for resistance a little lower around 1.5875, in respect to the falling trendline and a previous support pivot.
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