Strong reversal in play for GBPUSD

After breaching April's low and bouncing off February support at 1.3567, the GBPUSD (pound/US dollar) has seen a remarkable V shape recovery that is set to project the price towards the psychological level at 1.4000. Our sentiment on the cable is positive as chart patterns and technical indicators paint a bullish picture for the pair.

Firstly, GBPUSD displayed strength when it broke out from the upper resistance line of the descending channel that spanned for a little over a month. An upside break from this pattern is normally seen as a bullish reversal sign. As observed on the chart, this is a typical formation of a descending channel breakout when the price rose quickly and sharply upon breaching the upper resistance band.

Another pertinent observation is the Relative Strength Index (RSI) that broke above its neutrality area of 50. RSI is a momentum indicator that signals overbought conditions when its above 70, and oversold when below 30. During a downtrend, it is common for RSI to stay below 50 as there is insufficient bullish momentum. Conversely, during an uptrend, the oscillator tends to stay above 50. After struggling to advance beyond 50 since mid-June, the RSI finally broke out from the neutrality level, signalling further upside for the pair. Should the price retrace from the current price point, it is crucial to observe that the RSI stays above 50 to validate the continuation of uptrend.