Pound-to-Dollar Rate Back in the 'Sellzone'

- GBP/USD move higher provides bears scope to re-enter short positions.

-But, bearish candlestick pattern awaited to confirm move lower.

GBP/USD has continued recover after finding a floor at just beneath the key 1.3000 level and is quoted at 1.3149 at the time of writing.

It has now moved backed into what some technical strategists will identify as a 'sellzone' on the daily chart, which is the space between the 10 and 20 moving averages (MAs).

Traders see as the optimum place to sell a security when it is in a strong downtrend but is taking a pause for some profit-taking, as is the case with GBP/USD.

The pair fell to a trough low of 1.2958 on July 19 before pulling back up over 4 days to its current level at 1.3172.

It is currently in the space between the 10 and 20 simple moving averages (SMAs), which some traders call the 'sellzone' (in a downtrend) on account of it being a place where shallow pull-backs often reverse and start going lower again.

Although the GBP/USD has pulled back into the sellzone, suggesting an optimum time to sell, traders would normally first wait for a bearish confirmation signal from the charts, such as a bearish Japanese candlestick pattern (see table below), such as a shooting star, bearish engulfing or dark cloud cover pattern, before actually pressing the button.

Should such a pattern develop, however, it would greatly increase the probabilities of a continuation lower to a downside target, initially, at 1.2958, at the July 19 lows.

Clearly, if a bearish reversal pattern fails to form the exchange rate might continue moving higher.

Favouring a bullish outlook for the pair is Swiss broker Dukascopy, who note how the pair has broken above some key levels such as the 55-4hr MA and 200-1hr MAs in the 1.3120-30s, but how these may now provide support and a basis for a move higher.  

"It is likely that the pair finds support at this cluster and thus continues moving higher during the following sessions," says Dukascopy, adding, "one important resistance level to take into account today is 1.3180 where a trend-line and the 100-period SMA are located."

GBP/USD will reverse and resume its downtrend, falling to 1.3080, however, according to analysis from Deltastock Inc, a broker which is bearish the pair but for different reasons than that it is in the sellzone.  

The pair will encounter a 'glass-ceiling' at 1.3188, says the broker, and this will prevent further gains and lead to a move back down.

"Expect a reversal below 1.3190, for another slide towards 1.3080," say Deltastock.

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