GBP/USD - Is Head and Shoulders reversal a distant dream?

The risk-off mood on the Wall Street and the resulting drop in the US 10-year treasury yield to a 10-month low of 2.054% triggered a broad based sell-off in the US dollar. 

The GBP/USD pair rose to a high of 1.3043 yesterday before closing at 1.3030. The spot clocked a one-month high of 1.3044 in the Asian session today. 

The strength in the currency is largely a result of the broad based USD sell-off; given the UK data released yesterday was hardly encouraging. The PMI released yesterday showed the UK service sector growth hit 11-month low of August and car sales fall again. 

Greenback sell-off delays head and shoulders formation

Daily chart

The odds of the pair forming a head and shoulders bearish reversal pattern have decreased following yesterday’s spike above 1.30 handle. However, all is not lost for Sterling bears as the spot still trades below 1.3030 [left shoulder high]. Furthermore, the spot is yet to break above the stiff resistance at 1.3048 [May 18 high]. 

Note that the neckline support of the potential head and shoulders reversal pattern is seen at 1.2763 levels. 

GBP/USD Technical Levels

Tuesday’s close above 1.30 signals continuation of the rally from the recent low of 1.2774. The immediate resistance is seen at 1.3048 [May 18 high], which, if breached, shall open doors for 1.31 [psychological level] and 1.3126 [July 18 high]. 

On the downside, breach of support at 1.2995 [Sep 1 high] would open up downside towards 1.2909 [previous day’s low], under which a major support is seen directly at 1.2852 [Aug 31 low].