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by Charalambos Pissouros

Is GBP/USD Ready to Complete a “Head and Shoulders”?

GBP/USD edged lower today, after it hit resistance near the psychological zone of 1.2500 yesterday. Since September 13th, the pair has been trading in a consolidative manner, perhaps forming a short-term “head and shoulders” formation. At the time of writing, it looks to be headed toward the crossroads of the pattern’s neckline and the 1.2415 barrier, the break of which may signal the H&S’s completion.

Having said that though, in order to get confident with regards to a short-term reversal to the downside, we would like to wait for a dip below 1.2390, which is the low of September 17th. Such a move could pave the way towards the 1.2315 zone, or the low of September 12th, at around 1.2282. If the bears are still willing to stay in charge, a dip below 1.2282 may allow them to put the 1.2235 territory on their radars, which is marked as a support by the low of September 9th.

Taking a look at our short-term oscillators, we see that the RSI fell back below 50 and now points south, while the MACD is flat near both its zero and trigger lines. What’s more, there is negative divergence between both the indicators and the price action. The negative divergence and the RSI’s dip below 50 support the notion for further declines, but the flat MACD enhances our choice to wait for the pattern’s completion before we start examining the bearish case.

On the upside, a rebound back above the 1.2500 psychological zone may discard the “H&S” pattern and may encourage some bulls to push towards the high of September 20th, at around 1.2580. However, a break above that zone is needed to clearly change the near-term outlook back to positive. Such a move would confirm a forthcoming higher high on both the 4-hour and daily charts and may pave the way towards the 1.2655 mark, defined as a resistance by the inside swing low of June 27th.

GBP/USD 4-hour chart technical analysis

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