On the 4H chart, we can see a strong support at 1.2416, and if the current 4H candle will fail to close below this level, GBP/USD should be expected to produce a strong move to the upside.

Disclaimer: The analysis presented in this article is for educational purposes only and should not be considered as financial advice.

This analysis was done on MetaTrader 4.

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Trade Idea Details:

GBP/USD symbol

Type: Bullish

Key support levels: 1.2416

Key resistance levels:1.2517, 1.2640, 1.2710

Price Action: The daily chart shows that the price has broken above the 38.2% Fibonacci resistance level at 1.2210. Then on the correctional move down, price rejected this level, which at that time acted as the support. Clearly, there is a higher highs and higher lows pattern, suggesting a bullish trend in the long term.

But at the same time, we can see a clear bounce off the 200 Simple Moving Average at 1.2646 level, which occurred on April 14. Nevertheless, there is no strong indication of a potential downtrend, and therefore we can expect the price to move up and at least produce a double top near 1.2646. At the same time, the key resistance is seen at the 61.8% Fibonacci retracement level. This is 1.2708 level, which also corresponds to the 200 SMA breakout occurred on the 15.10.2019 and 12.03.2020.

Next is the 4H chart, probably the most important timeframe to watch. This is because of the recent rejection of the 200 Exponential Moving Average. We can see that price is attempting to break below the EMA. However, only 4H break and close below 1.2416 can confirm the breakout. Therefore, if 4H close will be above this support, GBP/USD is expected to turn extremely bullish, where the price is likely to reach 1.2708, which is nearly 300 pip growth potential.

And finally, let’s have a look at the 1H chart, where we can clearly see that GBP/USD is trading above the 200 EMA. In fact, after the EMA breakout, the price returned back and rejected it, suggesting strong bullish sentiment. Currently, the price has approached the point of the EMA breakout as well as the lower trendline of the descending channel. It could mean that 1.2416 area could be a potential entry level for bulls.

Potential Trade Idea: Waiting for the 4H candle close is suggested, and if the closing price is above 1.2416, the buying opportunity would be wide open. For the stop loss, yet again 4H closing price should be used. If GBP/USD will manage to close below 1.2398, it will become very risky to hold long positions for GBP/USD. On the other hand, a hard stop loss could be placed at 1.2375, which is just below 50% Fibonacci retracement level. In regards to the upside target, GBP/USD is expected to either produce a double top near 1.2640 area or move towards 61.8% Fibs at 1.2708.