Few months ago, the market was pushed above the depicted level of 1.5550 trying to reach the zone of 1.5900 where the depicted Head and Shoulders pattern was formed.
On November 2015, a bearish engulfing weekly candlestick closed below the level of 1.5200 (the neckline of the Head and Shoulders pattern). This supported the bearish side of the market in the long term.
Extensive bearish pressure has been applied to the demand levels of 1.4620 and 1.4360. Both of them were broken to the downside.
Shortly after the GBP/USD pair moved below 1.4220, evident signs of bullish recovery were expressed around 1.4075. Hence, the previous two weekly candlesticks closed above 1.4220 indicating strong bullish demand.
That is why the zone of 1.4360-1.4220 remains a significant demand zone for the GBP/USD pair. A bullish engulfing weekly candlestick is being expressed as depicted on the chart.
Bullish persistence above 1.4220 and 1.4360 was mandatory to maintain enough bullish strength in the market. The first bullish target is seen at 1.4615.
Any signs of a bearish rejection around 1.4615 should be taken into consideration as it corresponded to a broken weekly demand level, which now is acting as a supply level.
During 2015, a significant bearish rejection was expressed around 1.5770 and 1.5230 where a bearish Head and Shoulders reversal pattern was formed. Since then, the market has been trending downwards within the depicted bearish channel.
Few weeks ago, the level of 1.4950 was broken to the downside, constituting a significant supply level.
Daily persistence below 1.4800 (the lower limit of the depicted bearish channel) favored a bearish decline towards 1.4680 and 1.4610 where previous prominent bottoms are located on the GBP/USD daily chart.
Recently, the GBP/USD pair looked oversold as it moved further below the prominent demand levels of 1.4620 and 1.4360.
That is why, the depicted signs of a bullish rejection around the demand level of 1.4220 were considered to be a valid buy signal.
Bullish persistence above 1.4360 was mandatory to maintain enough bullish strength in the market. The first bullish target at 1.4615 has been already reached.
A daily closure above 1.4620 allows the pair to make a quick bullish movement towards the next resistance level around 1.4800. However, traders should watch for any signs of bearish rejection that occur around 1.4620.
Trading Recommendation:
In our previous articles, traders were advised to take a valid buy entry when GBP/USD bulls managed to achieve a daily closure above the level of 1.4220 and then above 1.4360. S/L should be advanced to 1.4550 to secure our profits.
Conservative traders should wait for clear signs of a bearish rejection around 1.4620 to sell the GBP/USD pair. S/L would be set as a daily candlestick closure above 1.4620.
The material has been provided by InstaForex Company - www.instaforex.com