Despite its strength over the last month, the pound was no match for the US dollar’s powerful rally on Thursday. It was always going to be a difficult ask for the pair to break through 1.5550 at the first time of asking, with it previously being a strong support level and the 100-day SMA providing additional resistance.
That doesn’t necessarily mean the rally in this pair has come to an abrupt end though, rather it may just be taking a breather. The bearish engulfing pattern on the daily chart would certainly suggest that the next few trading sessions may favour the dollar but beyond that there may still be some upside to come. The recent cross of the 20-day SMA above the 50-day SMA would certainly support this and suggest there has been an upward momentum shift. Every rally has corrections along the way and right now, I see little reason to assume this is any different.
The pair has already run into support around 1.54 which has frequently acted as support and resistance, probably because it’s a round number and this does often have an impact. I’m not sure this is going to hold though and therefore the first big initial test of this dollar rally will come around 1.5350. This has historically been a key level of support and resistance and on this occasion, the 100-period SMA on the four hour chart may provide further support.
Not far below this we have the 38.2% fib level – 23 January lows to 26 February highs – and two previous support levels from the last couple of weeks. This area of congestion could prove to be a strong barrier to any further decline in the pair. Below here we have the 50 fib level from the same move which also happens to fall on 1.5250 which has again been a fairly significant support and resistance level in the past.
If both of these levels are broken, then 1.5180 – 1.5220 provides further congestion for the pair with strong previous support and resistance levels and the 61.8 fib level potentially providing another barrier.
If all of these are broken, it would suggest that this is actually a continuation of the longer term downtrend, but until I see that, I remain bullish.
As it stands, OANDA traders certainly don’t appear to believe the cable rally has run its course.