GBP/USD Double Top Forming, But Don’t Bet On It

Daily Chart
GBP/USD Daily" title="GBP/USD Daily" height="630" width="989">
Price is retesting 1.59, the 2nd time in as many months, potentially forming an Eve-Eve double top should the aforementioned support break. Stochastic readings support further bearish movement, with readings pushing below the 35.0 "support". This opens up a potential move towards 1.57, where price is likely to find significant support should 1.59 is broken.

However, it should be noted that long-term momentum remains on the upside, hence the likelihood of 1.59 holding it equally if not higher. Therefore, traders should avoid "picking tops" and wait for further confirmation that a Double Top pattern is in play before entering aggressively.

4 Hourly Chart
GBP/USD 4 Hourly Chart" title="GBP/USD 4 Hourly Chart" height="630" width="989">
Zooming into the short-term charts, we can see more arguments for a short-term bullish rebound. On top of 1.59 providing support, the descending Channel Bottom is also providing additional support, with Stochastic readings currently pointing higher after dipping into the Oversold region. Currently the bullish cycle signal isn't formed yet, but it is likely that a signal will be provided should price break 1.5935 which is the top end of the current support zone. Should the aforementioned level get broken, we could see acceleration towards the Channel Top, but price will need to break the key 1.60 round figure level in order to shift short-term bias to the upside even if the Channel Top is broken.

On the other hand, should price break 1.59, it is possible that the Channel Bottom may continue providing support, resulting in a tempered movement lower and not the quick bearish acceleration that bears are expecting from a typical Double Top formation. Considering that the Bank of England rate decision is coming on Thursday, the chances of a "false break" become higher since the BOE is not expected to ease this time round. Minutes from previous meetings showed that MPC voting members were unanimous in both the rate and Asset Purchase decision, which makes it even more unlikely that a dovish outcome will appear. As such, if GBP/USD is only trading mildly under 1.59, the resultant bullishness may push prices back up above 1.59 and disrupt the technical double top setup.

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