After failing to clear the 2021 high at 1.4241, GBPUSD is turning lower and looks likely to test support at 1.4000 in the coming sessions.
Cable had looked on course to set a fresh record for the year against its US counterpart. However, the recent rally appears to be rolling over, and the path of least resistance is lower in the short term.
The dollar index managed a brief recovery yesterday, and there are signs that the buck may have finally stopped falling. For now, at least.
The Dollar strength added some downward pressure on the GBPUSD pair. Today’s low of 1.4098 is the lowest level we have seen over the last 7 sessions.
This 1.4100 is likely to provide some support to GBPUSD. However, a failure to hold the line could see the pricer extend lower to 1.4000.
The daily chart shows that Sterling’s 2021 peak of 1.4241 came in February. GBPUSD then retreated to a low of 1.3670 in March.
A bounce to 1.39000 followed before a second reversal to 1.3668, just 0.002 higher than the previous low.
The rally from this low resulted in a double bottom forming at 1.3270. This is a strong indication of a bullish reversal.
Now, as the GBPUSD seems to be failing at the previous high, it may be in danger of forming a double-top.
This is clearly a bearish indicator and suggests that the price could soon visit the 1.4000 level. This has been a strong area of both support and resistance this year. Therefore I would expect any decline to be met with buying towards this figure.
Nonetheless, should 1.4000 fail to hold, there is potential for GBPUSD to leg lower to the early April highs, around 1.3920.
The next support level then becomes 1.3800.
A close above 1.4241 would cancel this bearish view.
Follow Elliott on Twitter.
