GBPUSD:Price reverses direction after testing a resistance level
I predict GBPUSD to reverse in direction into a downtrend. This is suggested by the trend line which goes through the swing highs, and the strong resistance level at 1.5688. This resistance level was clearly tested in the morning of 17th August which, overall, gives it a much higher significance in the market's direction.
The Relative Strength Index indicates that the market was overbought which supports my prediction of a trend reversal into a downtrend. The bearish failure swing also supports my prediction of a short trade. Moreover, the current candlestick pattern of a bearish marubozu suggests the market's bearish nature.
It is possible for the GBP to now break through the 0.500 or even 0.382 retracement level, so it is difficult to estimate where a suitable take profit should be set up - it all depends on how bearish the GBP becomes. In case my prediction turns out to be incorrect, a stop loss right above the 1.5688 resistance level will be most suitable. If that does happen, the strong resistance may become a support and it could be a long trade thereafter.
Stop Loss: 1.5696
Take Profit: 1.5635
Risk/Reward Ratio: 1.77
The Relative Strength Index indicates that the market was overbought which supports my prediction of a trend reversal into a downtrend. The bearish failure swing also supports my prediction of a short trade. Moreover, the current candlestick pattern of a bearish marubozu suggests the market's bearish nature.
It is possible for the GBP to now break through the 0.500 or even 0.382 retracement level, so it is difficult to estimate where a suitable take profit should be set up - it all depends on how bearish the GBP becomes. In case my prediction turns out to be incorrect, a stop loss right above the 1.5688 resistance level will be most suitable. If that does happen, the strong resistance may become a support and it could be a long trade thereafter.
Stop Loss: 1.5696
Take Profit: 1.5635
Risk/Reward Ratio: 1.77