Is the GBPUSD Finally Breaking Out of Congestion?

Is the GBPUSD Finally Breaking Out of Congestion?

Will the GBPUSD continue its descent?

Is the GBPUSD Finally Breaking Out of Congestion?
Is the GBPUSD Finally Breaking Out of Congestion? Getty Images

The GBPUSD 240-minute chart shows that the price has been holding in a congestion pattern since around May 8th.  The line of white dots identify the low of the area (1.3351) and the red crosses identify the high range of the area (1.3426).  Price had moved up to the high of the range three times but each time failed to break through and move higher. 

Is the GBPUSD Finally Breaking Out of Congestion?The daily chart also shows that the red crosses coincide with the high of the 240-minute congestion range.  Additionally, the Stochastics indicates that as price went up to the ATR (red crosses) that hidden divergence formed because price was making lower highs and yet the Stochastics made a higher high.  The hidden divergence pattern indicates that the prior low at 1.3204 may be tested. 

GBPUSD Daily ChartHowever, there is also another scenario that may play out because of the weekly chart pattern.  Notice how when price was moving in an uptrend, before it broke to the downside, price went back to test the previous high and at that point formed a candlestick reversal to the downside (yellow circle)?  The same concept may occur on the weekly chart.  In other words, price may return to the low (1.3204) for a test before price goes up to test the ATR on the weekly chart (which is currently at 1.3830).  

GBPUSD Weekly ChartSince the Stochastics is still indicating an oversold status on the GBPUSD on the weekly chart, watching the daily chart for divergence patterns is crucial.  There are two different divergent patterns that could develop:

  •   Price manages to retest the low at 1.3204 on the daily chart and forms trend divergence (lower low in price but higher low on the Stochastics), then that may signal the GBPUSD may actually begin moving up (not down).
  •   Price fails to retest the low but the Stochastics moves lower (higher lows in price and lower lows on the Stochastics).

The ideal timeframe for this to occur would be prior to the MPC Official Bank Rate Votes, Monetary Policy Summary, and Official Bank Rate announcement on Thursday, June 21, 2018.
 

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