The GBP/USD pair has found strong resistance at the 1/8 murray line around 1.3732. This level represents strong resistance given that the lower line of the bearish channel that was broken on August 16 converges at that same level. The last 4-hour candlestick confirms the strong resistance as it has failed to consolidate above 1.3735.
On the 4-hour chart, we can observe the formation of a technical head and shoulders pattern. The left shoulder was formed on August 16, the head started its formation on August 20. Finally, the right shoulder is being formed now and it could take the same time as for the previous shoulder.
This technical head and shoulders pattern usually occurs at the end of prolonged trends. When it appears, it usually indicates the end of the trend. There is a strong probability that the objective of this pattern will be reached. For this, GBP/USD should break through the key level of 1.3735.
The potential and objective of this pattern can be found by measuring the size of the head movement, from its minimum (1.3600) to the neckline (1.3730). That same movement of the price continues from the break of the neckline, giving us a result of 1.3855 as the final target.
The bullish momentum that GBP/USD is receiving is due in large part to the weakness of USDX, which reached the maximum level of 93.73 of 8/8 of murray and is retreating. We now believe that the US dollar will enter a phase of correction and consolidation, which could favor the British pound and complete the formation of the technical pattern.
Another factor that is giving the GBP/USD pair bullish momentum is that investors now appear to have lowered their expectations about the possible time when the Fed will begin to reduce its bond purchases.
Therefore, the key moment is to wait for a clear and sharp break above 1.3735. It will be our opportunity to buy. We must wait for a technical bounce at the 21 SMA around the 0/8 line at 1.3671. This will be a good point to buy with the targets at 1.3810, and the price can go up to 1.3855.
Support and Resistance Levels for August 24 - 25, 2021
Resistance (3) 1.3886
Resistance (2) 1.3804
Resistance (1) 1.3759
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Support (1) 1.3671
Support (2) 1.3633
Support (3) 1.3556
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Trading tip for GBP/USD for August 24 - 25, 2021
Buy if the price rebounds from 1.3671 (0/8), with take profit at 1.3735 (1/8) and 1.3810, stop loss below 1.3636.
Buy if the price breaks through 1.3735 (1/8), with take profit at 1.3810 (2/8) and 1.3855, stop loss below 1.3700.
