GBPUSD – Breakout Near After Consolidation

June has been a month of consolidation for cable so far. The pair has found resistance from the top of the descending channel and the 89-period simple moving average on the 4-hour chart, while a number of support levels are combining to create a significant barrier to the downside.

gbpusd 4hr

These include the 55 and 89-day SMA, 50 fib level – 13 April lows to 14 May highs – and the fact that this is a prior area of support and resistance.

gbpusd daily

We may see further consolidation in the coming couple of days but we are nearing a breakout. From a technical standpoint, a break to the upside looks the most likely as the descending channel effectively combines with the 13 April to 14 May rally to form a flag formation – a bullish continuation pattern.

A break of this could bring the 233-DMA back into play, currently around 1.57, which proved to be too strong a resistance level in May.

A break below 1.5170 on the other hand could prompt quite an aggressive move to the downside due to the number of support levels being taken out in the process.

It could also be seen as the break of the neckline of the head and shoulders, formed since 24 April, which would be very bearish. Based on the size of the formation (head to neckline), this could prompt a move back towards 1.45, although the previous low around 1.4566 could prove to be a significant support level.

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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.