The cable has been recovering strongly from its latest tumble but could be set to plummet, given a nascent double top pattern, which is forming on the daily chart. Additionally, as the pair reaches a long-term zone of resistance the pair could find it difficult to extend its gains even with strong fundamental results. Likewise, the recent move to the upside has caused the pound to become overbought which should cause selling pressure to mount.
Looking to the daily chart, the cable is potentially about to from the second peak in a double top pattern. Consequently, as the pair reaches the 1.4765 mark traders will be looking for any sign of a reversal as this could mean some serious downside potential for the pound. What’s more, the UK GDP data is due soon and another disappointment in the figures could be the spark needed to see the pair move towards the neckline at 1.4339.
Whilst weaker fundamental results have serious downside potential, any upside movement will be severely capped by the robust long term zone of resistance at around the 1.48 handle. Additionally, the cable’s most recent rally has pushed the pair squarely into overbought territory. What’s more, the pound is not only oversold on the daily chart but on the weekly and H4 charts as well. As a result, it will require a flood of positive sentiment or a Preliminary GDP result well in excess of 0.4% q/q to prevent a bearish reversal.
All things going according to plan, the pair’s descent will be worth keeping an eye on especially around the 1.4331 mark. This price level represents the neckline of the double top and if support is broken here, the cable could slide significantly lower once again. If support does give way here, the cable could seek to test the recent low around the 1.40 handle. Consequently, watch the fundamental results closely as the pair reaches the neckline price level,as they could extend the cables losses.
Ultimately, with the probability of a Fed rate hike this June increasing, the pound is unlikely to be able to cling to recent gains for long. Additionally, there remains a significant chance that the UK GDP figures disappoint this week which is more than likely to send the pound spiralling lower. What’s more, increasingly overbought stochastic oscillator readings are more than likely to inspire a reversal even in the absence of a particularly week GDP figure. In the event that the pair does tumble once more, the confirmed presence of a double top could mean the cable plunges to tests recent lows once again.