GBP/USD has been trading in a sideways manner since July 30th, within a small pennant formation. Bearing in mind that the prevailing trend remains negative, we see more chances for the rate to exit the pennant to the downside rather than to the upside. However, we prefer to stay sidelined for now and wait for that potential exit before we turn our eyes to lower levels.
If this is the case and the pair dips below the pattern’s lower end, as well as the 1.2120 support level, we could initially see the bears aiming for the low of August 1st, at around 1.2080. If they are not willing to hit the brakes near that low and drive below it, this would bring Cable into territories last tested on January 17th, 2017. Sellers could then get encouraged to push towards the psychological zone of 1.2000, or even the 1.1980 zone, which acted as a strong support on October 7th and January 16th of the same year.
Taking a look at our short-term oscillators, we see that the RSI stands near 50 and points sideways, while the MACD lies fractionally below zero, slightly above its trigger line, and points east as well. These indicators detect lack of directional speed and support our choice to stand pat until the pair exits the pennant.
On the upside, a break above 1.2210 could also signal a break above the upper end of the formation and may initially set the stage for the peak of July 31st, at around 1.2250. Another move north, above 1.2250, could carry more bullish implications and may pave the way towards the 1.2335 barrier, which is defined by the low of March 20th, 2017, or towards the downside resistance line draw from the high of June 25th.
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