GBP/USD has been finding support around the 1.6750 minor psychological level, which coincides with a longer-term rising trend line, for quite some time now. However, the pair just made a strong downside break, indicating that a deeper selloff could be the in the cards.
Before that happens though, GBP/USD might still make a short-term pullback to the broken support area. The Fibonacci retracement tool shows that this lines up with the 38.2% level. Stochastic is still climbing, which suggests that there is a bit of buying momentum left to trigger a retracement.
Shorting at the 1.6775 area with a stop above the 61.8% Fib and a target of new lows around 1.6600 could yield at least a 3:1 return on risk. Adjusting the stop to entry once price tests the previous lows at 1.6700 could be a good way to reduce risk.
By Kate Curtis from Trader’s Way