GBP/USD Forecast: Hanging On to Same Consolidation Area

Christopher Lewis

The British pound pulled back a bit during the trading session on Monday, only to recapture the 1.41 handle. This is an area that is important, as it has been supportive multiple times over the last several weeks. At the same time, the 1.42 level offers a lot of resistance that we are simply grinding away in what could be thought of as a consolidated rectangle pattern. If we can finally break out of this pattern, we could perhaps get a little bit bigger move, but when you look at the chart it is clear that the upside is probably still favored by most traders.

Looking at the 1.42 handle, we have failed to break above there substantially on a daily close, and that would be the signal to start getting bullish and perhaps aiming for a move towards the 1.45 handle. We have not seen that yet, even though we have broken about 30 pips above the level intraday. When you look at the chart, you can clearly see that it has been a fight at the 1.42 handle.

To the downside, the 1.40 level is an obvious support level as it was previous resistance, and is a large, round, psychologically significant figure, so it is a bit difficult to get overly bearish in that area anyway. Any signs of support in that area would make a significant amount of sense, especially as the 50-day EMA is sitting just above it. That could open up the possibility of a move back towards 1.42 handle. On the other hand, if we were to break down below that level, it could open up fresh selling, perhaps sending this market down towards the 1.30 level, which was an area that acted like a magnet more than once for price. That being said, the 200-day EMA is reaching towards that level, so I would fully anticipate that there would probably be some interest there.

I do favor the upside, but it is worth noting that we have been grinding away for what seems like a lifetime and have not been able to finally break out. It is as if all we would need is some type of push to go in one direction or the other, and it must be noted that it certainly would catch a lot of people off guard to suddenly sell off.

GBP/USD

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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