GBPUSD Rally Meets Correction Signals

Andreas Thalassinos
Andreas Thalassinos

21.8.2024

The recent GBPUSD rally pulled the currency pair above significant resistance levels, reaching and surpassing the year's high at 1.30522.  Technical indicators, such as the 50-period EMA, Momentum oscillator, and RSI, confirm the bullish momentum.  However, caution is warranted as early signs of a potential correction are appearing. 

Overview

The recent GBPUSD rally pulled the currency pair above significant resistance levels, reaching and surpassing the year's high at 1.30522. Technical indicators, such as the 50-period EMA, Momentum oscillator, and RSI, confirm the bullish momentum.

However, caution is warranted as early signs of a potential correction are appearing. Negative divergence between the price and Momentum oscillator, along with overbought Stochastics, suggests that the current rally may face a pause or reversal. Traders should closely monitor these developments as they assess potential market moves.

Key Economic Events

Wednesday 14:30 (GMT+0) - USA: EIA Crude Oil Stocks Change (USD)

Thursday 07:15 am (GMT+0) France: Flash Manufacturing PMI (EUR)

Thursday 07:15 am (GMT+0) France: Flash Services PMI (EUR)

Thursday 07:30 am (GMT+0) Germany: Flash Manufacturing PMI (EUR)

Thursday 07:30 am (GMT+0) Germany: Flash Services PMI (EUR)

Thursday 08:30 am (GMT+0) UK: Flash Manufacturing PMI (GBP)

Thursday 08:30 am (GMT+0) UK: Flash Services PMI (GBP)

Thursday 12:30 pm (GMT+0) USA: Unemployment Claims (USD)

Thursday 13:45 (GMT+0) USA: Flash Manufacturing PMI (USD)

Thursday 13:45 (GMT+0) USA: Flash Services PMI (USD)

Thursday 140:0 (GMT+0) - USA:  Existing Home Sales (USD)

Thursday 22:45 (GMT+0) - New Zealand: Retail Sales q/q (NZD)

Friday 12:30 pm (GMT+0) - Canada: Retail Sales m/m (CAD)

Friday 14:00 (GMT+0) - USA: New Home Sales (USD)

Technical Analysis

The GBPUSD exchange rate bounced off August's lows when it formed a bullish Japanese candlestick reversal pattern known as a Morning Star. The Cable breached all Fibonacci Retracements levels (i.e., 23.6%, 38.2%, and 61.8%) to reach and exceed the year's high of 1.30522. The 50-period Exponential Moving Average, the Momentum oscillator, and the Relative Strength Index (RSI) support the bullish bias for the GBPUSD. Specifically, prices are trading above the EMA line; the Momentum registers values above the 100 baseline, and finally, the RSI is above 50.

A closer look can identify a negative divergence between the price and the Momentum oscillator, alerting for a potential correction to the downside. In addition, the Stochastics have crossed above the overbought area, adding to a potential pause to the GBPUSD rally.

Potential Upside Targets

If the bulls keep control of the market, traders may consider the following four potential upside targets:

1.30522: The first price target is 1.30522, which aligns with the daily high marked yesterday, August 20.

1.31422: The second price target is seen at 1.31422, representing a weekly peak.

1.32104: An additional resistance level is determined at 1.32104, corresponding to the (R3) resistance calculated using the weekly Pivot Points standard method.

1.32792: The fourth resistance is established at 1.32792, representing the 161.8% Fibonacci Extension between the swing high of 1.30522 and the swing low of 1.26648.

Potential Downside Targets

If the bears manage to take control of the market, traders may find potential opportunities in the following four downside targets:

1.29042: The initial level of support is identified at 1.29042, corresponding to the 61.8% Fibonacci Retracement between the swing high of 1.30522 and the swing low of 1.26648.

1.28120: The second downside target is expected to be 1.28120, corresponding to the (S1) support calculated using the weekly Pivot Points standard method.

1.26648: The third line of support is estimated at 1.26648, which aligns with the trough marked on August 8.

1.26128: An additional support level is estimated at 1.26128, representing a daily low recorded on June 27.

Conclusion

In conclusion, while the GBPUSD has demonstrated strong bullish momentum, pushing above key resistance levels and reaching new highs, signs of a potential correction are emerging. Negative divergence between the price and the Momentum oscillator, coupled with overbought conditions indicated by Stochastics, suggests that the current rally may face challenges. Traders should remain vigilant, monitoring these technical signals closely as they navigate the potential for both upside and downside market moves.

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Andreas Thalassinos
Andreas Thalassinos

Andreas Thalassinos is a recognized authority in the financial markets and world renowned for his expertise in algorithmic trading. He is a Certified Technical Analyst and highly respected lecturer in the education of traders, investors, and financial markets professionals. Thalassinos has played a key role in the development of education within the industry, training tens of thousands of traders of all skill levels. Traders value his seminars and workshops for the rich content, his passionate, charismatic, and lively presentations.