August 6, 2014 – GBP/USD (daily chart) has continued to extend its declines from the multi-year high of 1.7190 that was hit just three weeks ago, in mid-July. After that high was established, which was just short of its original 1.7250 upside target, the currency pair reversed course to make a sharp decline. That decline broke down swiftly below the key 1.7000 support level and the 50-day moving average in late July.
GBP/USD is currently trading squarely between its 50-day and 200-day moving averages, which are both still pointing up and indicating a solid bullish trend for the time being. At the moment, the recent drop can still be considered simply a pullback within the context of a strong, year-long uptrend.
The simple pullback could turn into a more substantial bearish move if the currency pair is able to break below major support around the 1.6700 level. This level is not only a key support/resistance factor, it is also where the 200-day moving average currently resides, as well as a key 50% Fibonacci retracement level.
Any breakdown below 1.6700 could signal a major correction, with further downside support around the 1.6500 and 1.6300 levels.
To the upside, a recovery of the current pullback would be indicated on a re-emergence above 1.7000, in which case the 1.7250 level continues to stand as the key upside target in a continuation of the longstanding bullish trend.
James Chen, CMT
Chief Technical Strategist
City Index Group
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