GBPUSD – Divergence Appears at Resistance Level

While cable has continued to trend higher following the break above the descending channel (flag formation), it has run into resistance around what has previously been a key region of support and resistance for the pair.

gbpusd daily

As it stands, the daily chart is merely showing indecision around the current levels. We are yet to see a convincing reversal setup that would suggest the rally is over and the downtrend continuing.

Today’s candle currently looks like a hanging man and has failed to break above Friday’s highs. That said, it is incomplete and alone not the strongest of reversal setups.

Supporting the bearish argument is the fact that we are seeing a bearish divergence between price action and the stochastic oscillator on the 4-hour chart, while on the daily chart it is in the process of crossing in overbought territory. This alone doesn’t mean we’ll see a reversal, it just highlights a slowing momentum which can happen in the run up to a reversal.

gbpusd 4hr

A reversal setup on the daily chart or previous lows being broken on the 4-hour chart may provide such support for the divergence. I would like to see the pair break below 1.5420-1.5450 broken before I become more bearish as this looks like a reliable area of support and resistance on the 4-hour chart.

We may have to wait a little longer for this though as the pair once again looks likely to rally, with the last 4-hour candle, a green hammer, being quite bullish. What will be key now is whether this will be followed by a break of Friday’s high. If not, it could be considered another bearish signal.

All things considered, I would like to see confirmation that the trend is either continuing or reversing before becoming bullish or bearish on the pair. The former could come from Friday’s highs and the divergence being broken and the latter from 1.5420-1.5450 being broken, preferably combined with a reversal setup on the daily chart.

It should be noted that the previous candle on the weekly chart is very bullish and another strong trend signal could come from the marabuzo line either holding or being broken this week.

N.B The FOMC meeting takes place on Tuesday and Wednesday (16 and 17 June) and will be followed on Wednesday evening with the latest monetary policy decision, a statement, new economic projections and a press conference.

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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.