GBPUSD – Head & Shoulders Or Break Higher?

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The 4-hour chart of GBPUSD is showing a divergence between prices and the RSI (6), which suggests that momentum could turn bearish any moment again.

In fact, the bottom trendline of the descending channel starting December 12, 2019, will intersect with prices soon if bulls push prices a tad higher. A potential intersection region lies ahead, just near the 1.2535 level. If tested, bears could take over. If not, we could see prices moving up to the next trendline intersection level, near 1.28.

The rate of the pound could slide down to the 50% Fibonacci retracement of the last impulse starting at 1.14 multi-year low. This is also an intersection region between prices and the longer-term ascending channel starting October 7, 2016.

The 1-hour chart below supports this view as the shorter-term structure resembles a head and shoulders pattern. This should allow bears to revisit the bottom trendline of the October 7, 2016 channel. And then, move higher.

gbpusd

The left shoulder and the head have been completed. The right shoulder has either completed at the 1.25 or will complete a tad higher near the H&S channel-price intersection.

The intersection level happens to also be an area where the descending December channel, the H&S channel, and prices could meet, forming the right shoulder.

In case prices continue lower in the short-term or after a test of the aforementioned intersection area, completing the right shoulder a little higher, traders must focus on the break of the neckline next.

A successful break could take prices lower at the bottom channel trendline first and then continue to the Fibonacci target of 1.2025.

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