Forex Technical Update

Previous: GBP/USD in Consolidation Breakout (11/1)

GBP/USD daily Chart 11/5/2012 7:55AM EDT

GBP/USD 11/5/2012 daily chart

False breakout: The break of the consolidation trendline resistance last week did not sustain. Instead, pullback price action was stronger the breakout action and brought cable back to its bearish consolidation since 1.63. The daily RSI reading has been stuck between 40 and 60. This reflects consolidation momentum, although the inability to push below 40 shows maintenance of the bullish momentum established from the 1.5265 to 1.63 rally.

More room for consolidation: When you look at the daily chart you can see that there is still some room for the downside even within the context of a longer-term bullish outlook. Below the current support pivot of 1.5913 there is the 200-day SMA and then the rising trendline and 1.5780 pivot. It will take a break below 1.5780 and the trendline from 1.5265 low in June to introduce the bearish outlook. With the bearish outlook, the RSI should break below 40, and tag 30.

As you can see, the direction is very unclear, but the closer to 1.58, the better a reward to risk ratio would be for a long trade. A short trade at this point does not carry good R/R, but the momentum in the near-term is bearish. We just have to remember that the overall mode is consolidation in the daily time-frame.

Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.

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