GBP/USD consolidated last week. Economists at OCBC note that a move below the 1.1920 area could confirm a descending triangle, opening up next support levels at 1.1840 and 1.1720.
Descending triangle?
“Daily momentum and RSI indicators are not showing a clear bias. But on the weekly chart, bullish momentum is fading.”
“On price action, a potential descending triangle could be forming with support at 1.1920 levels (200-DMA, triangle support). A decisive break to the downside could fuel more downward pressure. Next support at 1.1840, 1.1720 levels.”
“Resistance at 1.2040 (21-DMA), 1.2140 (50-DMA).”
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The British Pound to US Dollar exchange rate has recently been trading within a bearish channel, but, according to OCBC, a potential descending triangle pattern could be forming.
The descending triangle is a trend continuation pattern, and reflects market consensus that GBP/USD could soon extend its downward trajectory. The triangle is formed by a support line, represented by a horizontal trendline, and a declining resistance line, created by recurring highs.
At present, the bulls are defending this important support at the 1.1920 levels. While price movements above the 1.2000 handle can indicate a breakout, and the possibility of GBP/USD reaping further losses, any bearish activity below the 1.1920 level could imply further downside potential.
The pattern was identified by OCBC and monitored in a recent report. The report suggests that traders should be aware that GBP/USD could break out in either direction, depending on the perceived market sentiment and accompanied news.
If GBP/USD breaks out from the triangle to the north, we could expect a rally in the pair, with the 1.2000 level likely serving as a psychological resistance and any movement beyond as a signal for further upside momentum. Upon completion of a breakout, traders should look for confirmation by monitoring the volatility of the pair and verifying whether there is a noticeable increase in strength.
In terms of alternate scenarios, a breakdown of the 1.1920 support could indicate downside movement, with further losses potentially taking the pair below the 1.1800 level.
Overall, the potential descending triangle pattern may provide insight into the short and mid-term volatility in GBP/USD. Traders should continue to analyse the pair with caution and be mindful of potential support and resistance levels.
