The GBPUSD sell-off rejected the previous move above 1.6050 and is a challenge to the bulls in the shortest term. Today, let’s look at a possible further consolidation scenario from here. GBPUSD found a solid resistance area recently at around the 1.6050 level, an area that it poked at three times late in November before taking it out early last week with a move that topped out above 1.6130. Then the sequence above the 1.6050 level was subsequently rejected with the USD rally late last week, suggesting that the overall rally from the sub-1.5850 base is weakening. If we are to look for a three wave correction sequence, then the current small rally wave – a second or B wave – may find resistance ideally at the 61.8% retracement level around 1.6080 (red Fibo retracement lines shown in chart below), followed by a 100% extension or C-wave that could have a look down at 1.5950 (shown with blue Fibo extension lines if the pair does indeed go up to have a look at the ideal rectracement level). If the highs are in for now on that small rally at this old 1.6050 area that proved so important in the recent past, then the extension could poke closer to 1.5925 if we follow through lower here right away. Of course, we have important event risks in the pipeline that could push the USD around in other ways than the scenario outlined above – these are merely tactical points of interest on the chart to be aware of. If risk appetite improves and the USD weakens on the other side of the FOMC meeting Wednesday, and GBPUSD moves back above 1.6100 and hangs in there, it is more suggestive of a higher range holding and possibly a follow-through move higher, with 1.6000 as the important local support.
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