GBP/USD Trades Stuck Between Two Lines

GBP/USD traded lower yesterday, after testing the downside resistance line drawn from the high of July 30^th. However, the retreat remained limited at 1.3730, near a newly drawn upside support line, taken from the low of August 20^th. As long as the rate stays stuck between those two lines, we will hold a neutral stance.

In order to start examining whether the latest recovery marked by the recent upside line was just a corrective recovery, we would like to see a dip below 1.13730. This will confirm a forthcoming lower low on the 4-hour chart and may initially pave the way towards the 1.3680 support, marked by the low of August 27^th. The next support may be seen at 1.3643, marked by the inside swing high of August 20^th, the break of which could extend the fall towards the low of that day, at around 1.3602.

Taking a look at our sort-term oscillators, we see that the RSI lies slightly above 50, but just ticked down again, while the MACD, although slightly positive, still lies below its trigger line. Neither indicator is detecting strong directional momentum, which adds more credence to our choice of staying neutral for now and waiting for the rate to violate one of the aforementioned diagonal lines.

The outlook could turn positive in our view, upon a break above yesterday’s peak of 1.3807. This could confirm the rate’s advance above both the diagonal lines and may set the stage for extensions towards the 1.3870 or 1.3890 territories, which prevented the rate from climbing higher between August 8^th and 16^th. If the bulls are not willing to stop there either this time around, the gains could get extended towards the peak of August 4^th, at around 1.3955.

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