GBP/USD Is Renewing Its Downward Trend

After four weeks of being range-bound during which time the pair formed a barbed wire pattern on the W1 time frame consisting of four bars, GBP/AUD is on its way to a trend reversal from an upward to a downward trend.

The weekly bar from last week closed as a very impressive pin bar under the monthly and W1 resistance at 1.81654.

My expectation is that during the next week the downward trend will lead the pair to the support trend line of the upward trend (in red) or even a little lower, to the 1.7950 – 1.7850 zone.

This zone is a strong support for the GBP and the pair won’t overcome it easily. If the breakout does occur we could we expect the downward trend to continue to 1.7100 – 1.7000.

The alternative scenario is for a renewal of the rally, but I think it looks less valid for the moment.

GBP/AUD May Be Preparing To Renew Its Rally

The bars on the W1 time frame for the past four-five weeks are exceedingly small spinning tops that have been formed within the support zone above 1.7100 – 1.7200.

I expect that the pair will renew its move north after the depreciation from last month that began from 1.79940 and ended at 1.70962. I think that in the medium term the pair will head for the resistance trend line (in blue) and it will reach 1.8000 – 1.8100.

In the alternate scenario there will be a depreciation, but that scenario will become valid only in case there is a break out below the support trend line (in red) and the pair remains below it for a considerable period of time. In the short term that is not very probable.

GBP/AUD Is Forming an Inverse Head and Shoulders Pattern

After the big drop of the GBP back on 7th October 2016, when the GBP fell drastically compared to all other currencies, we finally see attempts to begin returning to its old levels.

On the GBP/AUD daily time frame we can see a morning star bar which could be the first signal for an impending move to the upside. Also the RSI indicator is forming a divergence between the last two lows from 19th October and 26th October.

 On the four-hour time frame we can see a classic inverse head and shoulders pattern.

For me these signals are enough to expect a new move to the upside. If the inverse head and shoulders pattern reaches its limit then after a breakout above the neckline we can expect the pair to rise with about 300 pips.