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GBPUSD pattern inside pattern could lead to big move
GBPUSD has been mired in a constant flow of ‘Brexit’ headlines and while this is to continue, a pair of chart patterns are beginning to become increasingly clear. A descending wedge is taking shape, with a clear set of bottom and top-side trend-lines to work with. This pattern is also a pattern inside a larger pattern.
Let’s start with the shorter-term descending wedge. These often lead to a negative outcome as a result of the lower highs associated with them showing increasing selling pressure, however; the coiled-up price action can result in a breakout to the top-side as well. Have to wait for the break.
With the general trend off the January low pointed higher and solid support via a trend-line and the 200-day in place, an upside breakout can’t be ruled out. Especially if the broader bottoming sequence since last year is to come to fruition…
Since August, GBPUSD has been in the process of carving out a potentially large bottoming sequence taking on the shape of an inverse head-and-shoulders pattern. The aforementioned wedge doesn’t need to lead to a neckline breakout but is viewed as the cleanest scenario if indeed an inverse H&S is to be confirmed.
In any event, a breakout above the neckline is required for validation and to kick off a much broader rally. Should it do so, the longer-term target will become the high from a year ago in the lower 14000s or so.
Moving back to the shorter-term set-up. Needed to trigger the wedge pattern is a strong daily close above the top-side trend-line or below the lower trend-line and the March low at 12960. A top-side breakout will have 13380 (approximately where the H&S neckline is) up to ~13700 targeted, while a downside break will bring into play 12770 and the lows from December/January.
See what fundamental factors besides ‘Brexit’ that could impact this chart set-up in the Q2 GBP Forecast.
GBPUSD Daily Chart (Wedge, Possible Inverse H&S)
***Updates will be provided on these ideas and others in the trading/technical outlook webinars held at 9 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX