Technical Analyst, Saxo Bank
GBPUSD has formed a rising wedge like pattern trading in a tighter and tighter range with strong resistance at around 1.23.
A bearish break out of the wedge followed by a close below 1.21 is likely to fuel a sell-off down to the 0.382 retracement at 1.1566. The 55 and the 100 daily SMA’s will provide support.
However, no divergence on RSI indicates we should not rule out higher levels in GBPUSD. A close above 1.2344 could spur a new rally higher with no strong resistance until around 1.2665.
EURGBP 0.8550- 0.8565 is key for EURGBP. EURGBP has dipped below 0.8565 to around 0.8550 several times but has not managed to close below.
Indicators are inconclusive. RSI is showing negative sentiment indicating lower levels are likely, but Moving Averages are pointing in each direction; 21 and 55 SMA’s are declining but 200 SMA rising i.e., short- to medium term sentiment is down but up on a bit longer term.
If EURGBP closes below 0.8550 a sell off down to around 0.84-0.8340 is likely.
If the key support area holds and EURGBP can bounce back to close above 0.87 levels around 0.8825-0.88.65 are in the cards.
RSI divergence explained: When the price of an instrument is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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