By Russell Glaser – Over the last two days the price of the GBP/USD has pulled back from its test of the 1.60 level. Signs of negative divergence appear on the daily chart signaling a weakening trend and a possible reversal.
Looking at the daily chart, two trend lines have been drawn. The short term trend line begins at the June low (not shown) and the intermediate trend line starts in mid-September. The second trend line was broke during yesterday’s trading in a sharp decline over the past two trading days. In today’s European trading session the GBP/USD has climbed has high as the broken trend line and is now acting as a resistance level.
The daily chart highlights a potential reversal of the trend due to the close below the trend line and also negative divergence that has appeared on the Momentum (14) indicator.
The price for the pair was rising and reached a new high (1.6017) in the uptrend while the momentum line was falling, thus creating negative divergence. This is a possible warning sign of a reversal in the trend.
Traders may want to scale back any long positions they may have in the GBP/USD or tighten stops. A close below the support level of 1.5670 (S1), the low from September 30th and a break of the long term trend line will signal a shift in the long term uptrend.
Forex Market Analysis provided by ForexYard.
© 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.
