GBP/USD Technical Outlook
- Cable carving out a descending wedge that could lead to rebound
- Price pattern is mature enough it could trigger any day
GBP/USD Technical Analysis: Potential Bottoming Formation Developing
GBP/USD is down but not out, as a potentially bullish pattern develops. Since early May cable has been working on building a descending wedge formation with each new low. The narrowing of price action with the trend could lead to an explosive top-side move.
These patterns are explosive as they combine both a contraction in volatility with a reversal in trend that catches the market on its heels. They don’t always trigger in the opposite direction of the trend, but when they trigger in the direction of an extended trend it is often a terminal move before a reversal.
To get the pattern triggered on the top-side we need to see price rise above the top-side trend-line of the pattern and make a short-term higher high. Crossing 12056 would have GBP/USD both above the top-side trend-line as well as achieving a higher-high.
In the event this occurs, look to the slope from February as the first line of resistance, followed by the June 16 high at 12406. On the flip-side, if we see an acceleration lower, given the extended nature of the trend this year, look for a reversal to quickly unfold.
Fishing for a bottom on the downside scenario can be dangerous, so taking a more conservative approach would to wait for a reversal to actually develop and see price take out the top-side trend-line of the pattern before turning bullish.
GBP/USD Daily Chart
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
