The GBP has been trading higher over the last couple of days after losing more than 600 pips in the first two weeks of this month. It also jumped 100 pips after today's UK inflation report came out above expectations.
That should have kept the GBP in demand and GBP/USD should have continued the uptrend. But, this pair has lost all the gains it made after the inflation report. This is obviously not a good sign for buyers.
When a forex pair reverses so quickly and gives up gains, chances are that it will continue to trend downward. What support levels do sellers need to break for the downtrend to resume?
Now that stochastic is overbought, the picture looks even more bearish
The first support level comes at 1.3840, where we can find the 100 SMA (red) on the H4 chart. The next one is at 1.38 which is protected by the 50 SMA on the daily GBP/USD chart.
1.37 is a big round number so it is likely to be a tough support level for sellers, but the main one comes at 1.3650. That’s where we sold this forex pair, so we need this pair to fall below that level. This was a major resistance level for more than a year, making it likely to turn into support now. Well, that’s likely to take some time, giving us time to think out our strategy.