Pound Bulls are Testing Head and Shoulder Line Near 1.2050

The GBP/USD currency pair is showing an oscillating move in the narrow path of 1.2048 to 1.2080. This came up in the early hours of the Tokyo session on Monday. the cable has pulled back after it dropped close to the psychological supportive line of 1.2000 last Friday.

Bulls Lose Grip

Bulls of the British Pound are fast losing their grip and they might remain fastened to their hooks. Testing the head and shoulder line where they were formed on the hourly scale kept investors away from the center of the action. 

GBP/USD price chart. Source TradingView

Normally, the head and shoulder pattern would be indicative of a bearish reversal. It should come after an extended positive dispensation of the cable pair. The neckline of the current monetary chart pattern was marked from the low level on the 29th of July at 1.2063. 

The 20-period exponential moving average and the 50-period exponential moving average are respectively at 1.2090 and 1.2120. But they are both declining at a rapid rate and this adds more weight to the filter going downward.

Whereas, the relative strength index is also oscillating between 40.00 and 60.00. It might just come to show an ordinary downward move when it gets violated.

There Might Be Hope for Bulls

Any downward move under the low level seen on Monday at 1.2050 will take the cable in the direction of the 1.2000 psychological line. It would then be followed by the low level seen on the 16th of July at 1.964.

On the flip side, bulls of the British Pound might just get back their mojo. They might then be able to push the asset to higher levels toward the high and low levels of the 3rd of August at 1.2200 and 1.2135 respectively. But this is after they must have beat the 20-period exponential moving average at 1.2090.

Other factors have been adding pressure to the pair and foreign exchanges generally. Actual inflation and the hawkish policies of central banks have been doing the most. The ECB’s increment of interest rates last week, although aimed at curbing inflation, escalated recession fears in the UK.

The high cost of living, especially on food and gas puts pressure on the country’s gross domestic product. There is now more palpable fears of inflation in the US even though it seems the Federal Reserve is looking to re-define recession since it is not able to arrest the high recession.