In November 2015, a bearish engulfing weekly candlestick closed below the level of 1.5200 (neckline of the Head and Shoulders pattern). This enhanced the bearish side of the market in the long term.
Extensive bearish pressure has been applied to the demand levels of 1.4620 and 1.4360. Both of them were broken to the downside.
On January 21, after the GBP/USD pair moved below 1.4220, evident signs of a bullish recovery were expressed around 1.4075. Hence, previous weekly candlesticks closed above 1.4220 and 1.4360 again.
Bullish persistence above 1.4360 was mandatory to maintain enough bullish strength in the market. The first bullish target was seen at 1.4615 where the current strong bearish momentum was initiated.
As the previous weekly candlestick maintained its bearish persistence below the depicted demand zone (below 1.4200), the next weekly demand level is located at 1.3850 (historical bottom that goes back to March 2009).
As expected, evident bullish recovery is being offered around 1.3850 (prominent weekly demand level). Hence, a valid buy entry can be taken near the same price level.
On February 4, the market failed to close above 1.4615. An inverted hammer daily candlestick was expressed. Hence, a bearish pullback took place towards 1.4360.
Note that the GBP/USD pair was trapped between 1.4615 and 1.4220 until a recent lower high was established at the level of 1.4530. This applied extensive bearish pressure against 1.4220.
Hence, an extensive bearish breakout below 1.4220 is being manifested on the daily chart (the GBP/USD pair currently looks oversold).
That is why, signs of bullish recovery and a possible long entry was expected around 1.3850. A recent bullish swing is currently being expressed towards 1.4000 and 1.4075.
On the other hand, the broken demand zone (1.4360-1.4222) now constitutes a significant supply zone to offer a bearish rejection when any upcoming bullish pullback occurs.
Trading Recommendation:
Conservative traders could take a valid entry around the price zone of 1.3850. It is already running in profits. Initial T/P levels should be located at 1.4000 and 1.4075.
On the other hand, price action should be watched around the price zone of 1.4360-1.4222 for a valid SELL entry.
The material has been provided by InstaForex Company - www.instaforex.com