GBP/USD Daily Analysis 17.01

GBP/USD Date: Thu, 17 January 2008 13:23:05

Price action on the GBP/USD daily chart, as shown, has developed a clear case of classic oscillator divergence within the context of the current downtrend in the pair. This simply means that while price has hit a lower low, the oscillator (in this case, the MACD histogram) has hit a higher low. For those technical traders that use oscillator divergences in their trading, this represents an indication of a potentially impending upturn in price. Indeed, since the low was hit on 1/11/2008, price has already risen a few hundred pips. Within the context of the current downtrend channel, this divergence signal could suggest a possible retracement at least back up to the downtrend resistance line. This level may be in the approximate region of the 23.6% Fibonacci retracement level (the high-to-low span being measured from the multi-year high hit on 11/9/2007 to the recent low on 1/11/2008) as shown on the chart. But in view of the steepness of the current downtrend channel, if price momentum continues to the upside a break above the downtrend resistance line could easily be expected. In this event, the major Fibonacci retracement levels on the chart point out further potential resistance to the upside.