By: Mike Kulej
The British Pound has had a very nice rally, which started around the Christmas time last year. In particular, the Pound-Dollar pair, or the “cable” has rallied from 1.5344 to 1.6275. This progress was stalled few days ago, suggesting a possible correction.
This high came very close to testing the resistance of 1.6298, established in November 2010. The combination of these two highs raises a possibility of a double top, a reversal formation, as is visible on the daily chart. We can also see that the candlestick when the high was made is a combination of a shooting star and an engulfing line – bearish in the context of the chart.
What Now?
So far, the price has drifted down, rather than sold off. Several days ago a minor low formed at 1.6160. For the moment, it is the level to watch. If it gives way, we can expect more down movement, a real correction, perhaps to as low as 1.5800 area, where the next support is found.
Right now the ADX, a good trend strength indicator, is still dropping, which means that a possible correction of some magnitude is not yet confirmed. It should start turning upwards, especially when (if) the 1.6060 support is broken. That would increase the probability of the GBP-USD changing direction.