GBP/USD Technical Analysis: April 03

Sunday, 03 April 2011 18:08

Ahead of this week’s Bank of England meeting, we see signs of a potential breakdown of the pound below 0.5980. Let’s take a look at the daily chart.

Observations

1- The price recently tried several times to get past November 2010’s high (1.6291), but failed each time.

2- An important support level at 1.5979 (S1) has been developing since the beginning of the year.

3- A bearish candle pattern (three black crows) suggests an important selling momentum.

4- The MACD divergence indicates a potential correction to the downside.

5- Although last week was positive, the choppy price action presents aspects of a short term retracement.

In the light of these observations, it is quite difficult to paint a positive future for the GBP/USD. On the other hand, we can easily imagine a break below 0.5980, down to 1.5745 in a first move, then to 1.5346 in a second move.

Now, with a news-packed upcoming week, there are plenty of ways the GBP/USD could reverse back to the upside. Hence, we recommend waiting for the BOE and ECB statements reaction before entering any trade.