**GBP/USD Recovery Curbs Threat of Head and Shoulders Formation**
*This article summarizes and expands upon insights originally from Fawad Razaqzada via Forex.com. It provides an in-depth technical and fundamental analysis of the GBP/USD currency pair, focusing on current price action, chart patterns, and broader market context.*
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### Overview
The GBP/USD, often called “Cable,” has recently exhibited signs of recovery, which has prompted analysts and traders to reassess previously forming bearish chart patterns, particularly the head and shoulders setup that had threatened a deeper correction. This development comes at a critical juncture amid evolving monetary policy expectations in the UK and US, as well as pivotal economic data releases.
This article delves into the current technical landscape of GBP/USD, the significance of the head and shoulders pattern, relevant fundamental drivers, and what to watch in the days ahead.
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### Background: The Head and Shoulders Setup
Technical traders often monitor the head and shoulders pattern because its completion usually implies a trend reversal from bullish to bearish. Here’s a brief breakdown:
– **Left Shoulder:** Price rises and falls, forming a first peak.
– **Head:** Price rises higher than the left shoulder, then drops.
– **Right Shoulder:** Price rises to a lower high, then declines.
The “neckline” connects the lows after the left shoulder and the head. If the price breaks below the neckline, it often signals further downside.
In recent weeks, GBP/USD’s price structure had begun resembling this pattern. However, recent price action calls into question whether the setup will play out or fail, with implications for short and medium-term pound direction.
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### GBP/USD Technical Analysis
#### Recent Price Action
– GBP/USD recovered some of its recent losses after finding support near the 1.2600 area.
– This move coincided with broader US dollar weakness, as traders reassess the likelihood of further Federal Reserve tightening.
– The bullish response has lifted GBP/USD away from the neckline of the potential head and shoulders, lessening the immediate threat of a breakdown.
#### Chart Picture
A closer look at the daily chart reveals several key details:
– **Left Shoulder:** Formed around late April to early May, with prices peaking near 1.2670.
– **Head:** Built up in mid to late May, with a higher swing high near 1.2800.
– **Right Shoulder:** Developed in early June but failed to rally as high as the head, topping near 1.2760 before dropping.
– **Neckline Support:** Located near 1.2600, marking a level of technical and psychological importance. It has so far held up against selling pressure.
#### Technical Indicators
– **RSI (Relative Strength Index):** The daily RSI had begun to dip towards 40 during the pullback, but has since stabilized, suggesting bearish momentum has paused for now.
– **Moving Averages:** GBP/USD remains above its 200-day simple moving average (SMA), signaling that the broader uptrend is intact unless there is a decisive break lower.
– **Price Structure:** The sequence of higher highs and higher lows, characteristic of an uptrend, is not yet decisively broken.
#### Upside Levels to Watch
– **1.2700-1.2720 region:** Initial resistance where sellers emerged in early June.
– **1.2760:** Top of the right shoulder, next significant hurdle.
– **1.2800:** Marks the recent swing high and the top of the head.
#### Downside Levels to Monitor
– **1.2600 (neckline):** The key line in the sand. A clean break below would validate the head and shoulders pattern, opening the door for further losses.
– **1.2520:** Intermediate support zone from April.
– **1.2450-1.2470:** Deeper support, also aligning with previous swing lows.
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### Why Has the Head
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