GBP/USD Respects Support Zone to Move Higher

GBP/USD (daily chart as of November 22, 2013) held the 1.5890-1.5955 support zone (mentioned in our November 13 analysis) once again, with a strong bullish candlestick on November 13. Price then broke out above the short-term resistance downtrend line in the subsequent trading sessions.

We can see how price action has been respecting that support zone on three occasions (three red rectangle shapes on chart). Note that the currency pair has been trading in a range from around 1.5890 to 1.6260 for about two months since October 1, and it appears that price is making a correction to its prior strong uptrend, or is in the midst of a potential short-term topping out.

Note also that current price is riding on the daily EMA 20, which has been serving as support since November 15. Take a look at the three red arrows on the chart. Two of those candlesticks had longer lower shadows that formed right at the EMA 20, showing relatively strong support at session lows.

As long as price can hold the EMA 20, it should continue the recent upside momentum to move higher. In the event of price falling below the EMA 20, another leg down move would be expected to test the mentioned support zone again.

Support levels below:
1st support: daily EMA 20
2nd support: support zone of 1.5890-1.5955
3rd support: 1.5750 (June 17 high) or daily EMA 200

Resistance levels above:
1st resistance: 1.6250/60 (key resistance level)
2nd resistance: 1.6340 (January 2 high)
3rd resistance: monthly EMA 200