GBP/USD is starting the week looking at a bullish swing against last week’s bearish swing from 1.7191 (2014-high) to 1.7036. The rally is so far pushing above last week’s falling trendline. This is an early clue that the mode could be shifting back to bullish. However, it is not enough. A couple more clues can help the case for bullish revival.
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1) A break above 1.7131 would be able to break above the 61.8% retracement of last week’s swing, and above the 200-, 100- and 50-hour simple moving averages.
2) If the RSI is also pulled back above 70, the bearish outlook should be shelved, and the market would then be at least neutral if not back to bullish.
3) Further bullish continuation clues could be a hold above the 1.71 mark while the 1H RSI holds above 40 after a subsequent pullback. In this scenario, the 1.7190-1.72 area will be in focus, with pressure to break into fresh 2014-highs on the back of a prevailing trend that started from July 2013’s low at 1.4813.
When you look at the 4H chart, you can see that after last week’s downswing, GBP/USD appears to be putting in a price top. However, the bearish break has not been convincing.
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1) Price was rejected from closing under the 1.7060 support/resistance pivot area, and the “price top” still has the possibility of simply being a ranging consolidation before the prevailing uptrend extends.
2) If we see the bullish clues in the 1H chart start to build up, we should lean towards the possibility that price action in July has simply been sideways consolidation.
3) The 4H RSI has been holding above 40, despite brief cracks below it. This shows that in the 4H chart’s time-frame, for the most part, the bullish momentum since June is maintained. However, as the RSI held below 60, it reflected the consolidation momentum. A push above 60 would show liberation from consolidation, and suggest a bullish continuation.
4) Bearish target/support: In the price top scenario, price should hold below 1.7130, preferably below 1.7120. The first downside target should be around the 31.8% retracement of June’s rally, around the 1.70 handle. This was also a support/resistance pivot, and will possibly be reinforced by a rising trendline from June.
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