British Pound, GBP/USD, Descending Channel – Technical Update:
- British Pound transitions into sideways price action
- Daily chart reveals bearish Head & Shoulders pattern
- 4-hour timeframe has key moving averages in focus
The British Pound consolidated against the US Dollar this past week despite GBP/USD confirming a breakout under the key rising trendline from last year. The 100-day Moving Average held as key support, maintaining the broader upside focus. But, a closer look at the broader price action shows that GBP/USD appears to be forming a bearish Head & Shoulders chart formation on the daily chart below.
For this formation to potentially play out, the exchange rate must confirm a breakout under the neckline around 1.2592. That would also entail taking out the 100-day MA, offering an increasingly stronger bearish technical conviction, and opening the door to potentially revisiting lows from March. Otherwise, key resistance is the right shoulder just under 1.2848.
| Change in | Longs | Shorts | OI |
| Daily | -7% | 1% | -5% |
| Weekly | -2% | 13% | 2% |
Zooming in on the 4-hour chart can give us a better picture of how the near-term trend is shaping up. Last week, I highlighted a Descending Channel. Since then, positive RSI divergence emerged, showing fading downside momentum. That preceded GBP/USD piercing the ceiling, offering a neutral technical bias in the short term.
That said, a bearish Death Cross remains in play between the 50- and 100-period MAs. This past week, Sterling was unable to clear above the latter on this timeframe, reinforcing the line as resistance. Pushing higher exposes the 38.2% Fibonacci retracement level of 1.2824, followed by the 23.6% point at 1.2946. In the event of a turn lower, keep a close eye on the 61.8% level of 1.2626.
--- Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com
