GBPCHF: False Breakout Sparks Potential for a Resurgence Above Resistance
30 June 2023
This analysis focuses on the GBPCHF pair, where a potential bullish reversal is developing. For several months, GBPCHF has been trading in a sideways range, defined by a long-term horizontal support (depicted in grey) and a long-term horizontal resistance (drawn in blue). In June, the price attempted an upward breakout but failed to sustain above the blue resistance level, instead forming a head and shoulders pattern (highlighted in yellow).
This pattern was seemingly activated on Wednesday when the price broke the neckline of the formation (shown in black), theoretically signaling a selling opportunity. However, this turned out to be a false bearish breakout (indicated in grey) as the price has since returned above the neckline, negating the previous downward breakout.
Furthering the bullish scenario, the price is currently breaking a mid-term downtrend line (illustrated in green), which links the peak of the head with the right shoulder of the pattern. This action decidedly invalidates the head and shoulders formation.
The immediate goal for buyers now is to reclaim the blue resistance level, but this time more permanently. The bullish sentiment is anticipated to hold as long as the price stays above the neckline. A drop below the neckline, however, would indicate a rejection at the blue resistance level, potentially triggering a selling signal.