Few months ago, the market was pushed above the weekly key zone around 1.5550 in an attempt to reach the area of 1.5900, which provided significant bearish resistance.
Recent weekly candlesticks came as bearish engulfing candles, closing below the level of 1.5220 (the neckline of the Head and Shoulders pattern). This supported the bearish side of the market in the long term.
A quick bearish decline towards the weekly demand level of 1.4950 was expected as a result of the bearish breakdown below 1.5200.
Weekly persistence below 1.4950 exposed the way towards 1.4800 while the price levels of 1.4650 and 1.4600 (the depicted demand levels) waited for a bearish visit after the market pushed further below the level of 1.4800 (the lower limit of the depicted bearish channel).
Given the previous bullish rejection expressed around 1.4600 on April 2015, a new bullish swing off the current price zone should be expected.
Note that a bullish closure above 1.4950 allows another bullish pullback to occur towards 1.5350.
During 2015, significant bearish rejection was expressed around 1.5770 and 1.5230 where a bearish Head and Shoulders reversal pattern was established. Since then, the market has been trending down within the depicted bearish channel.
The price level of 1.4950 was broken to the downside few weeks ago, constituting a significant supply level. As anticipated, it offered a valid sell entry on December 24.
Daily persistence below 1.4800 (the lower limit of the current bearish channel) allowed further bearish decline towards 1.4680 and 1.4610 where previous prominent bottoms are located on the GBP/USD daily chart.
This week, the GBP/USD pair looks oversold as it is being pushed further below the lower limit of the depicted bearish channel as well as the prominent demand levels at 1.4600.
That is why, early signs of a bullish reversal around the price zone of 1.4650-1.4570 should be considered as a valid buy signal.
Trading Recommendation:
Risky traders can have a valid BUY entry anywhere around the price zone of 1.4620-1.4550 if enough bullish rejection is expressed in short-term charts (H4 and H1).
S/L should be located below 1.4500 to minimize our risk. Initial T/P levels should be located at 1.4700, 1.4800 and 1.4950.
The material has been provided by InstaForex Company - www.instaforex.com