Is the GBPUSD Consolidation About to Breakdown?

It has been a relatively rocky ride for the venerable Cable over the past few weeks as the talk of a BREXIT continues to impact the currency. However, despite some of the recent selling, the pair is firmly within the grips of a consolidation pattern that could see some dramatic moves in the week ahead.

Undertaking a technical analysis of the Cable’s 4-Hour chart yields some potentially interesting clues for the week ahead. It is readily apparent that the currency pair has largely been trapped within a slightly bearish consolidating channel since the middle of March. Although the pair has reacted sharply to a range of external shocks, including increased talk of a BREXIT, price action has remained within a relatively tight range. However, some sharp recent selling has seen the pair trend towards the bottom of the range which could indicate a strong move ahead.

In fact, the technical indicators are showing some interesting signals as the RSI Oscillator remains relatively flat, near over-sold territory, despite the recent price declines. Subsequently, there is some divergence between the indicator and price action that could be indicating a reversal of the short term trend. In confluence with RSI, the stochastic oscillator is also deep within oversold territory which lends further credence to the argument for a short term reversal.

Subsequently, there is plenty of scope for the entry of a long position above the key 1.4170 resistance level. Alternatively, a break below the 1.40 handle would indicate a sharp push towards the bottom of the channel is likely. However, be aware of any short side move as the Risk/Reward ratio is not advantageous.

Ultimately, the Cable’s forward trend is likely to wait upon the UK Manufacturing Production results before making a strong move. However, given the recent collapse in the pair’s value, the downside might be relatively limited. Subsequently, the most likely scenario is a sideways consolidation at the current level before a challenge of the 1.4170 resistance level.