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GBP/USD (daily chart as of September 15, 2015) broke down below the 100-day EMA (bold blue moving average line on chart) on August 26 with a long bearish candlestick. This 100-day EMA has been serving as major support/resistance line since late February (red arrows from 1 to 6 on chart). On August 27, the pair also broke down below the medium-term uptrend line connecting the lows since early May (bold red trend line on chart).

GBPUSDDaily1

Note that a potential head-and-shoulders pattern has emerged, with the May 14 high and August 25 high as the shoulders, the June 18 high as the head (gray shape on chart), and the medium-term uptrend line or the 100-day EMA as the neckline. Current price is trading below the 100-day EMA.

If the 100-day EMA remains as resistance, the pair could decline further to test 1.5170 level again, and potentially 1.4975 area. The potential projected target of the head-and-shoulders pattern is around 1.4880 level (if 100-day EMA as the neckline) or 1. 4790 level (if medium-term uptrend as the neckline).

If price breaks out above the 100-day EMA and the medium-term uptrend line, it would invalidate the potential head-and-shoulders pattern. The pair could trade higher to test 1.5680, and then potentially 1.5815 level again.

Support levels:
S1: 1.5170 (multiple lows)
S2: 1.4975 (multiple highs)
S3: 1.4790/4880 (projected target of potential head-and-shoulders pattern)

Resistance levels:
R1: 100-day EMA or medium-term uptrend
R2: 1.5680 (multiple highs)
R3: 1.5815 (August 25 high)

Post by Diane Ming, Contributing Author of InvestingTeacher.com. She is an Affiliate Member of the Market Technicians Association (MTA).

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Diane Ming is an Affiliate Member of the Market Technicians Association (MTA). She is a Technical Analysis Contributing Author of InvestingTeacher.com.

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