The Cable Has to Come Down from the Clouds

1. Long-Term Outlook:

As can be seen on the daily chart below, the GBPUSD is indeed getting very close to set resistance. Despite the huge ground that has been covered recently, the market technically remains range-trading. This can be inferred from the ADX indicator, which has been threading below the 20-point benchmark (event lower than the 25-point key benchmark) since the 14th of December. This environment is suitable for the establishment of corrections.

This is especially important when viewed in conjunction with the Stochastic RSI indicator, which points to the fact that the market is currently massively overbought. All of these factors could potentially lead to such a bearish correction.

Notice also that the price action is compartmentalised using the Elliott Wave Theory - there are bigger cycles and smaller cycles represented on the chart below. The last impulse leg (4-5 in green) of the supercycle encapsulates the last stage of this massive 1-5 impulse wave pattern. On the condition that this impulse leg is indeed completed around the psychological resistance at 1.40000, which is not yet certain but quite probable, a bearish correction would be the most likely outcome.

Furthermore, this impulse leg represents in itself a bullish 1-5 impulse wave pattern (in light blue), which is also set to complete its final impulse (also 4-5). Interestingly enough, this minor 4-5 leg started developing just as the market started range-trading. All of these indications seem to be aligning favourably for the development of a bearish correction.

The emergence of a Shooting Star candle a couple of days ago also substantiates these expectations because this type of candles typically entails rising bearish bias in the market.

The most probable target for such a correction is encapsulated by the 23.6 per cent Fibonacci retracement level at 1.33497, not only because of the Fibonacci's psychological significance. The level is also currently converging with the 100-day MA (in blue) in addition to marking the previous swing high (point 3 in green, highlighted by the light blue ellipse).

2. Short-Term Outlook:

The latest upswing is represented as a Rising Wedge pattern on the 4H chart below. Its emergence elucidates the still-strong bullish bias in the short-term. Because of it, a test of the 1.40000 resistance and even some fakeouts above it seem probable. Notice how, after breaking out above the Wedge's upper boundary, the price action established a minor throwback before continuing to appreciate. All of this further exemplifies set bullish bias.

Nevertheless, a buying volume climax has already been reached, which creates a divergence in the price action. Namely, the price is struggling to advance higher while the MACD indicator is falling down. This evolving disparity is to be expected if the market were to develop a bearish correction indeed.

Before the beginning of such a correction can be firmly ascertained, the price action would have to break down below the ascending trend line (continuation of the Wedge's upper boundary).

It is also worth mentioning that the price action appears to be developing a Double Top pattern, as shown on the hourly chart below. This type of patterns is typically taken to represent possible bearish reversals, which is inlined with the broader expectations for a sizable bearish correction.

The price action would have to break down below three crucial test levels before the beginning of such a correction can be firmly confirmed - the minor support at 1.38500, the aforementioned trend line, and the minor support at 1.37800.

3. Concluding Remarks:

Bulls do not appear to have much choice for trading here. Even though the market remains oriented towards the north side, it is also substantially overbought. In other words, buying in into the market at this late stage of the rally would be a mistake because any entries would no longer be advantageous at such a high price.

In contrast, bears can start looking for potential entries around the psychological resistance at 1.40000 (or the current market price). They need to apply tight stop-losses, preferably just above set resistance. While the risk of adverse fluctuations and temporary fakeouts above 1.40000 remains prevalent, the bears need to hedge themselves because they would be practising contrarian trading. They might have to execute several orders before they get the desired entry.

GBPUSD Finally Starts a Long-Awaited Trend Reversal

After months of anticipation, the GBPUSD finally looks poised to establish a sizable downturn. The change in the underlying market sentiment was brought about by shifting investors' opinions. Namely, the rising yields of the mid-term U.S. Treasury Notes are currently strengthening the greenback. Investors' demand for riskier assets is rising, which is disadvantaging securities generally considered to be safe-havens. Accordingly, the demand for the greenback increases parallel to the waning levels of adverse market uncertainty.

Not even the better-than-expected manufacturing numbers in Britain from earlier today were sufficient enough to cushion the hit on the sterling. Meanwhile, the projections for rising employment in the U.S. - the Non-Farm Payrolls scheduled for release on Friday - are likely to bolster the greenback in the short-term further.

Overall, the underlying fundamentals seem almost perfectly inlined with the anticipations for continued price depreciation on the cable. This creates favourable conditions for the implementation of trend-reversal trading strategies.

As can be seen on the 4H chart above, the bearish reversal commenced from the swing peak of a bullish 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory. This in itself is demonstrative of the rising selling pressure in the market.

The decisive breakdown below the psychological support at 1.40000 represents yet another significant piece of evidence confirming the expectations for continued price depreciation. At present, the price action is consolidating just below this psychological resistance, in a narrow range spanning between the 50-day MA (in green) and the 100-day MA(in blue). The former serves the role of a floating resistance, whereas the latter acts as a floating support.

This minor consolidation represents a temporary break in the development of the newly emerging downtrend, which market bears can exploit. Once the price action breaks down below the 100-day MA decisively, it will be ready to target the Support Area's lower boundary (at 1.37800). Once this level is broken, too, the GBPUSD will be ready to fall towards the major support level at 1.36000.

Bears can look for an opportunity to enter short around the current market price, however, they should keep in mind that the price action could test the 1.40000 resistance from below once more. This is also due to the fact that the psychological resistance is currently converging with the 50-day MA.

Meanwhile, the MACD indicator exemplifies the rising bearish momentum in the market, which is to be expected in an increasingly more pronounced bearish market. Finally, on the condition that the price action somehow manages to break out above 1.40000 decisively, the selling opportunity should be considered as terminated.