GBP/USD Recovery Vulnerable as Bear Flag Formation Takes Shape

Article By: ,  Strategist

British Pound Outlook: GBP/USD

GBP/USD may trade within the November range as it pares the decline from the start of the week, but the exchange rate may stage additional attempts to test the May low (1.2446) as a bear-flag formation appears to be taking shape.

GBP/USD Recovery Vulnerable as Bear Flag Formation Takes Shape

Keep in mind, the recent recovery in GBP/USD pulled the Relative Strength Index (RSI) back above 30, and the exchange rate may extend the advance from the November low (1.2487) as the oscillator moves away from oversold territory.

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In turn, GBP/USD may further retrace the decline following the US election as it carves an ascending channel, but the rebound in the exchange rate may turn out to be temporary as the 50-Day SMA (1.2932) develops a negative slope.

With that said, a bear-flag formation may unfold should GBP/USD continue to hold below the moving average, and the exchange rate may test the May low (1.2446) if it struggles to hold within the ascending channel.

GBP/USD Price Chart –Daily

Chart Prepared by David Song, Strategist; GBP/USD on TradingView

  • GBP/USD bounced back ahead of the May low (1.2446) carve an ascending channel, with a break/close above the 1.2710 (23.6% Fibonacci extension) to 1.2760 (61.8% Fibonacci retracement) region raising the scope for a move back towards 1.2820 (38.2% Fibonacci extension).
  • Next area of interest comes in around 1.2900 (23.6% Fibonacci retracement) to 1.2910 (50% Fibonacci extension) but a continuation pattern may unfold should GBP/USD struggle to close above the 1.2710 (23.6% Fibonacci extension) to 1.2760 (61.8% Fibonacci retracement) region.
  • A breach below channel support may push GBP/USD towards 1.2540 (78.6% Fibonacci retracement), and failure to defend the November low (1.2487) may lead to a test of the May low (1.2446).

Additional Market Outlooks

USD/CHF Pullback Faces Positive Slope in 50-Day SMA

USD/CAD Defends Post-US Election Rally to Eye November High

US Dollar Forecast: USD/JPY Gives Back Post-US Election Rally

EUR/USD Recovery Eyes Former Support Zone Around April Low

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

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