GBP/USD has rebounded as the USD was weakened by the USDX's sell-off. The pair is trading at 1.2233 level and you should know that a further drop is under threat as the price is about to take out very strong and important resistance.
The UK's data has come in mixed today, the CPI has increased only by 0.8%, less versus a 0.9% estimate, while the Core CPI has registered a 1.4% growth, matching the consensus. GBP/USD is trading right below a supply zone, that's why the pair could be very attractive for those who want to sell.
GBP/USD has found strong support at the 38.2% level, it has rebounded and it has reached the S1 (1.2288) level, the support has turned into resistance, and also the downtrend line, a false breakout above these levels and a rejection will send the pair down again.
The bias is bearish as long as the price is trading below the downtrend line. The Head&Soulders downside target remains somewhere at the 23.6% level, near the S3 (1.1806). GBP/USD could still approach the next downside targets if it stays below the downtrend line.
A larger drop could be invalidated by a valid breakout above the downtrend line and above the S1 (1.2288) level. It is important for you to know that a larger drop will be validated after a valid breakdown below the 38.2% Fibonacci level, if the price makes another lower low.
- GBP/USD TRADING TIPS
We may have a short opportunity if the breakout above the downtrend line is a false one, the first downside target will be at the 38.2% level. GBP/USD was rejected by the S1 (1.2288) static resistance, a bearish engulfing followed by a downtrend retest will signal another bearish momentum in the short term.
However, a larger drop will be confirmed after a valid breakdown below the 38.2% retracement level, and below the 1.2074 level, this potential breakdown will represent a great selling signal. The S2 (1.1985) level and the S3 (1.1806) level could be used as downside targets.
Another drop on GBP/USD will be invalidated if the price closes and stabilizes above the downtrend line, a long opportunity could appear after a breakout above the 50% (1.2302) retracement level.
