GBPUSD – Divergence Seen at Key Support

In my piece a couple of days ago (GBPUSD – Dollar Regains Control in Cable Battle) I highlighted the 1.5170-1.5220 region as potentially being key after the pair broke through a number of support levels and the dollar asserted its dominance.

gbpusd daily

This region was particularly notable as asidefrom previously being a key region of support and resistance, it also marks the 50% retracement of the move from 13 April lows to 14 May highs and the reversion to the 89-day simple moving average. Often in the past, price action has bounced off the 89-DMA and the trend continued. When it hasn’t it has been a good indication that the trend has changed.

Upon approaching this level, we are seeing signs that it will once again prove to be a barrier to price action as momentum is being lost despite price action making new lows. In other words, we’re seeing a divergence between price action and the stochastic and MACD.

gbpusd 4hr

While these are secondary indicators to price action and I do prefer to see confirmation of the trend change, they do act as useful warning signs that a trend is weakening which tends to come before a reversal. This could be as simple as a hammer on the daily chart or even better, bullish engulfing pattern or something similar.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.