Price is retesting 1.59 the 2nd time in as many months, potentially forming an Eve-Eve double top should the aforementioned support breaks. Stochastic readings supports further bearish movement, with readings pushing below the 35.0 “support”. This opens up a potential move towards 1.57, where price is likely to find significant support should 1.59 is broken.
However, it should be noted that long-term momentum remains on the upside, hence the likelihood of 1.59 holding is equally if not higher. Therefore traders should avoid “picking tops” and wait for further confirmation that a Double Top pattern is in play before entering aggressively.
4 Hourly Chart
Zooming into the short-term charts, we can see more arguments for a short-term bullish rebound. On top of 1.59 providing support, descending Channel Bottom is also providing additional support, with Stochastic readings currently pointing higher after dipping into the Oversold region. Currently the bullish cycle signal isn’t formed yet, but it is likely that a signal will be provided should price breaks 1.5935 which is the top end of current support zone. Should the aforementioned level gets broken, we could see acceleration towards Channel Top, but price will need to break the key 1.60 round figure level in order to shift short-term bias to the upside even if Channel Top is broken.
On the other hand, should price breaks 1.59, it is possible that Channel Bottom may continue provide support, resulting in a tempered movement lower and not a quick bearish acceleration that bears are expecting from a typical Double Top formation. Considering that Bank of England rate decision is coming on Thursday, the chances of a “false break” becomes higher since BOE is not expected to ease this time round. Minutes from previous meeting showed that MPC voting members were unanimous in both the rate and Asset Purchase decision, which makes it even more unlikely that a dovish outcome will appear. As such, if GBP/USD is only trading mildly under 1.59, the resultant bullishness may push prices back up above 1.59 and disrupt the technical double top setup.
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