The GBP/USD chart is currently forming a Bearish Butterfly harmonic pattern, suggesting a potential reversal is approaching. With the recent rise to point D, which aligns with Fibonacci levels and trend lines, several trading strategies can be developed based on the current technical structure. The market is showing overbought conditions, further supporting the possibility of a pullback. Below are the key strategies to consider.
1. Short Sell at Point D (Bearish Butterfly Pattern)
Description: Point D, near 1.3370, marks the potential end of the Bearish Butterfly pattern and a significant resistance zone. Combined with the overbought readings on the TDIGM oscillator, this area becomes a prime candidate for a bearish reversal. Entry: Short between 1.3350 and 1.3370, but wait for reversal confirmation signals (candlestick patterns like a Doji or Bearish Engulfing). Target 1: 1.3100 (Support from A-B-C structure) Target 2: 1.2803 (Previous support and 61.8% Fibonacci retracement of the most recent rally) Target 3: 1.2696 (Deeper support and Fibonacci extension) Stop Loss: 1.3450 (Above point D, invalidating the pattern)
The strong resistance at point D, coupled with harmonic and overbought signals, suggests a high probability of a pullback. However, it’s essential to confirm the reversal with technical indicators and candlestick patterns before entering the trade.
In the event of a mild pullback at point D, a buy on the retracement of the previous rally (A-B-C) could be an alternative strategy. The 1.2800 support zone is favorable for this scenario, but its likelihood depends on whether the overall uptrend remains intact. If the pullback at point D is shallow, this opportunity could arise.
On the weekly timeframe, GBP/USD shows an ascending channel. Look if the price respects the channel resistance. However, traders should watch out for potential false breakouts.
Keep an eye on support and resistance zones and monitor closely price action and confirmation signals on lower timeframes before taking action!