The GBPUSD pair on the Daily Chart has been following an upward path since 23 September 2020, having found support at the historical key support level at 1.26743. The formation of the Japanese candlestick reversal pattern known as Morning Star signalled the very beginning of the upward bias.
The attractive price enticed buyers who entered the market with long positions and as a result they have pushed the Pound Sterling to higher levels, following a pattern of successively higher tops and higher bottoms.
Subsequently, the currency pair formed a Bearish Engulfing pattern near the resistance level of 1.31759 which hinted at the end of the rally and the potential beginning of a decline.
Upon applying Technical analysis on the price chart, one can see that the last Japanese candlestick of Bearish Engulfing pattern managed to close below the 10-period Exponential Moving Average line, a fact that also points to the downward direction and the bearish bias in the market.
Additionally, the Relative Strength Index Oscillator registers values below the fifty line, which also confirms the negative sentiment in the market.
Both technical indicators, as well as the Japanese candlestick reversal pattern, are in agreement in terms of Sterling’s downward bias.
Furthermore, the current price is trading below the upward trend line, which also implies that supply is greater than demand.
One would expect that Sterling traders will be closely watching market reaction at the historical key support level at 1.26743.
Applying the Fibonacci Retracement tool to the low price of the Bearish Japanese candlestick at the price of 1.29155 and dragging it up to the high price of the pattern at the price of 1.30789, three price targets were calculated:
- The first price target is estimated at 1.27521 (200%).
- The second price target is seen at 1.25887 (300%).
- The third price target is projected at 1.24253 (400%).
Of course, it remains to be seen whether the crowd psychology as well as the bears’ pressure will manage to maintain the control of the market and bring the Sterling lower.
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