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The pattern alert on the GBP/USD’s 15-minute chart offers an interesting analysis of current price action, beyond the breakdown of the Channel Down pattern. The pattern is currently trading with a four-bar Initial Trend reading, and this may reveal the most important information regarding what the next move in the GBP/USD (also known as the “cable”) may be – that is, the reading points to a sideways, volatile range, the type of which will often pierce support and/or resistance… but not necessarily follow through. The fact that the Forecast area plotted so close to the breakdown level at 1.5254 (S) confirms the likelihood for exhaustion very close to the pattern’s short-sell trigger. The Forecast level is waiting from 1.5249 to 1.5241, just five pips from the pattern’s lower line.

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This very limited follow-through suggests that prices are going to form a short-term base along the area from 1.5249 to 1.5241, and allows for the possibility of a transition out of the downtrend that formed the Channel Down and into a sideways distribution cycle. Autochartist’s one-bar Breakout reading also points to a low level of momentum accompanying the pattern breakdown, thus limiting downside follow-through.

Watch for the GBP/USD to form a bottom base, and possibly rally higher through the downtrend line resistance waiting at 1.5287. Be cautious, though, because follow-though higher will be affected by not only the volatility of the distribution market cycle, but also by the “big figure” resistance waiting at 1.5300. Because of today’s strong sell-off in the GBP/USD, traders may look to short into rallies in expectation that the downtrend will resume.

Charts courtesy of Autochartist

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