GBP/USD Bearish Head & Shoulders in Focus

British Pound, GBP/USD, Descending Channel – Technical Update:

• British Pound transitions into sideways price action
• Daily chart reveals bearish Head & Shoulders pattern
• 4-hour timeframe has key moving averages in focus

The British Pound consolidated against the US Dollar this past week despite GBP/USD confirming a breakout under the key rising trendline from last year. The 100-day Moving Average held as key support, maintaining the broader upside focus. But, a closer look at the broader price action shows that GBP/USD appears to be forming a bearish Head & Shoulders chart formation on the daily chart below.

For this formation to potentially play out, the exchange rate must confirm a breakout under the neckline around 1.2592. That would also entail taking out the 100-day MA, offering an increasingly stronger bearish technical conviction, and opening the door to potentially revisiting lows from March. Otherwise, key resistance is the right shoulder just under 1.2848.

Chart Created in TradingView

Zooming in on the 4-hour chart can give us a better picture of how the near-term trend is shaping up. Last week, I highlighted a Descending Channel. Since then, positive RSI divergence emerged, showing fading downside momentum. That preceded GBP/USD piercing the ceiling, offering a neutral technical bias in the short term.

That said, a bearish Death Cross remains in play between the 50- and 100-period MAs. This past week, Sterling was unable to clear above the latter on this timeframe, reinforcing the line as resistance. Pushing higher exposes the 38.2% Fibonacci retracement level of 1.2824, followed by the 23.6% point at 1.2946. In the event of a turn lower, keep a close eye on the 61.8% level of 1.2626.

Chart Created in TradingView

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com