GBP/USD Under Pressure Below 1.6725

GBP/USD (daily chart as of March 19, 2014) has been unable to clear 1.6725 for a month or so. The most recent effort was on March 13 by touching a high of 1.6715, but ended up with a very bearish candlestick that had a very long upper shadow and small black real body, as shown with arrow 3 on the daily chart. That effort could be considered a retest of the previous uptrend support line connecting the lows since February 24.

Current price is trading below a short-term downtrend line connecting the March 13 high and March 7 high, and also within a flag-like range (between line 1 and line 2 on chart). The pair needs to break out above the short-term downtrend line for a possible test of line 1. If it is capped by the downtrend line, price could seek further support at the daily EMA 100, which has been serving as strong support since November 2013.

The pond has been the best performer among its peers in the past year with UK’s improving economy and falling unemployment, which raises the expectation of an earlier-than-forecast interest rate hike.

It is uncertain at this point whether the pair is making a top or a continuation pattern. The most recent test of the daily EMA 100 occurred in early February, as shown with arrow 4 on chart. Price rebounded and surged right from there by making fresh highs. However, the upside momentum has been weak as mentioned in our previous analysis. The pair is still unable to clear 1.6670, which is the last significant high point before the early February surge.

Support levels below:
1st support: daily EMA 50
2nd support: line 2 or daily EMA 100
3rd support: daily EMA 200

Resistance levels above:
1st resistance: 1.6670 (January 24 high)
2nd resistance: 1.6725 (February 21 and 25 high) or line 1
3rd resistance: 1.6820 (February 16 high)