Last week the GBP/USD made a beautiful move down from a fresh daily supply zone, to which a 200 day simple moving average joined, and left the bulls no chance. In two days the pair dropped more than 300 pips. The weekly candle looks like the bears are in full power, but their first hurdle will be the support line around 1.4950, which can hold the price and form a right shoulder in a reverse head-and-shoulders bullish pattern.
This cannot be ruled out, in light of the following:
- The pair is sitting above monthly and weekly demand zones; the weekly zone is fresh (its top is around 1.49)
- Bullish divergences have been formed in the stochastic and MACD indicators on the weekly chart
- As mentioned in this article, a monthly bearish engulf has formed in the US Dollar Index, signaling for potential weakening of the US dollar.
If you are going to trade the British pound pairs this week, watch out for high volatility around these coming events:
- Construction PMI on Tuesday, May 5
- Services PMI on Wednesday, May 6
- UK General Election on Thursday, May 7
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