By Russell Glaser – The GBP/USD has taken a pause this week while forming a rising channel line before making its next move. Technical indicators show the momentum of this bullish move is wavering, which could set up for a downward move in the price of the pair.
The cable continues to range trade between the prices of 1.5080 and 1.5240 as volatility in the pair has significantly fallen. The Average True Range (14) has dropped to 135 from its high of 260. Many times volatility drops off and the price action consolidates before a large breakout move in a currency pair occurs.
Currently the price is contained by the short term resistance line at 1.5240. A break above this line could send the pair higher to the 23.6% Fibonacci level at 1.5300 (R1). This is a retracement from the long term bearish trend that began in November. Following a breach of R1, the pair could trade higher at the next resistance level of 1.5520 (R2).
However, this is where the bullish move may end as the price approaches the downward sloping trend line and the 23.6% retracement level. This technical resistance should be enough to contain the rising price action.
A sell signal that is forming on the MACD Oscillator also hints at a price move lower. The momentum appears to be weakening as the MACD histogram is negative sloping and a bearish cross is forming, indicating the potential for downward movement in the pair.
Price targets for a move lower in the pair will be the support level at 1.5050 (S1), which also coincides with the lower end of the channel. The second price target with a long term focus will be the March low at 1.4780 (S2).
As the price approaches the long term trend line, combined with significant resistance levels, large swings in the price can occur. Combining the resistance levels along with the technical signal, being short looks to be the right move.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
