GBPUSD – Potential Bearish Setup at Resistance

Cable made steady gains again on Monday on the back of stronger than expected UK manufacturing data earlier in the session before running into resistance around 1.55, as it did on numerous occasions in October.

The latest phase of the rally came at a time when the stochastic was making lower highs suggesting momentum in the latest rally is fading. This divergence at what has recently been a key resistance level is not in itself a bearish signal but it does make me less bullish in the short term.

With the pair trading at prior highs with divergence, the only thing that’s missing is a reversal setup which could be seen as confirmation that a consolidation, correction of reversal has occurred.

We could be seeing that now on the 4-hour chart, with a possibly evening star formation appearing. If the current candle closes and confirms this, it would suggest further downside could follow.

Initial support came around 1.54, which held at the first time of asking. A break below here would support the view that further losses lie ahead. Below here, further support could be found around 1.5380 – prior support and resistance – and 1.5350.

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