GBP/USD: Respect the Channel Reversal

There is a lot of negativity surrounding the pound sterling but do not ignore the rally that is occurring now.

The cable has moved higher through the downtrend line of the Channel Down on the daily chart. This move is accompanied by a break though the 1.6200 level on the pair which has been resistance since the Jul13 rally and represents a break that could really attract momentum.

Another interesting aspect of the price action that preceded the break was the simple moving average “sandwich” that was established between the 200 period SMA (support) and the 50 period SMA (resistance).

7-22-2011 8-08-03 PM.jpg

The daily GBP/USD has triggered a pattern reversal by rallying higher through the resistance of the Channel Down. Notice the higher Autochartist Breakout reading confirming the momentum of the pattern reversal. This increases the likelihood for upside follow-through.
Chart pattern courtesy of Autochartist.

Since prices are trading above the 34EMA Wave and are painting green GRaB candles, this is a pattern and trend reversal of the short downtrend that helped form the Channel Down pattern.