GBPUSD Bearish Flag (Feb 17, 2016)

GBPUSD suffered a sharp selloff in recent trading and is currently consolidating. A bearish flag continuation pattern can be seen on the 1-hour time frame, signaling another round of potential losses for the pair. 

The mast of the flag is approximately 220 pips in height so the resulting breakdown could be of the same size, taking GBPUSD down to 1.4080-1.4100. A break below the current 1.4300 levels could be enough to signal that more losses are in the cards. 

The 100 SMA is below the 200 SMA, confirming that the path of least resistance is to the downside. However, stochastic and RSI are both indicating oversold conditions and are turning higher, suggesting that bearish pressure is fading and that profit-taking might take place. 

If so, an upside breakout could lead to a rally to the nearby resistance at the 1.4450 minor psychological mark, which previously served as near-term support. 

Catalysts for a breakout include the UK jobs figures, with the claimant count expected to show a 2.9K increase in joblessness compared to the previous 4.3K rise. Of particular importance is the average earnings index, which is slated to fall from 2.0% to 1.9%, underscoring the BOE’s view that domestic price pressures are still weak. 

Meanwhile, the unemployment rate is expected to fall from 5.1% to 5.0% although this might be spurred by a drop in labor force participation. Stronger than expected data could allow GBPUSD to recover while weak results could spur another leg lower. 

As for the US dollar, the FOMC minutes are up for release and these could push the majors in a strong direction. Recall that Fed officials have been wary of falling commodity prices and global financial risks these days so market watchers could be setting up for a downbeat release. 

By Kate Curtis from Trader’s Way