GBPUSD is residing at resistance after recovering

GBPUSD entered the year trending slightly lower after retracing from a historical resistance level that the pair encountered in March and December of 2019 at 1.3371. Amid the escalation of the Covid-19 global pandemic, GBPUSD plunged 12.44 per cent within a span of two weeks and reached an all time low of 1.1382. Thereafter, the price started its gradual ascent and achieved a full recovery in August which was then rejected off the key level. At present, the pair is residing at the resistance again after staging a quick recovery from the dip.

A clear formation of an ascending triangle pattern may be observed, which is typically identified as a bullish continuation pattern. This indicates the possibility of an impending price break out. However, various signs are pointing to a higher likelihood of a pull-back before moving to the upside.

The first sign is a coincidence between price residing at the key resistance and the stochastics oscillator revealing an overbought condition. The stochastic oscillator is a directional indicator as well as a measure of momentum. A reading above 80 signifies an overbought condition while a reading below 20 represents an oversold condition. Note that at the previous two occurrences where an encounter of price at the resistance was met with an overbought condition, there was an immediate downturn. This may hint of residual selling power which buyers may not be able to break above.