Let’s check out the action on the GBPUSD 4-hour chart. The rising trend line connecting the lows of the price was broken late last week, suggesting that a reversal from the uptrend could take place. However, the pair doesn’t seem ready to back down yet. After the break, it pulled up to retest the broken trend line a couple of times, with the most recent retest occurring at the 61.8% Fibonacci retracement level. With the stochastics almost in the overbought area, sellers could take the pair down to support around the psychological 1.4400 handle.
Is the Aussie revving up for another strong move down? I say this because a bearish engulfing candle has popped up on the 4-hour chart, right after it bounced from the 61.8% Fibonacci retracmenet level. Coupled with stochastics showing overbought conditions, we could see the pair swing lower and test former lows. If you’re part of the bull camp, however, watch out for a candle closing above the 61.8% Fib as it could lead to rally towards .8500.
It looks like the bearish flag I pointed out yesterday did break out… but upwards! The rally was short-lived though, as the pair immediately found strong resistance at the 38.2% Fibonacci retracement level. Judging from the downward pointing stochastics, we could see a retest of 1.1900. However, if price goes above the previous day’s high, it could open the way for a retest of 1.2150, a support-turned-resistance level.