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Title: GBP/USD – Divergences remain

Dec 09, 2021 11:15AM ET

By: AnalysisWatch

The pound has continued to move lower in recent days, but it continues to lack momentum, which could indicate further weakness in the sell-off.

The recent low was reached by a renewed loss of momentum, suggesting that a correction may not be far away. It should be noted that divergences between prices and oscillators are not reversal indicators in themselves, but rather a warning sign of an impending reversal if the movement loses momentum.

So while the pair is still trending down, the fact that it is not developing new momentum continues to suggest weakness in the sell-off.

However, this leads to a slight change in the above key levels. The first test for the pair now is the top of the descending channel at around 1.3250, the break of which could be an early signal for a correction.

The next test is at around 1.33, a historical support and resistance level that now coincides with the 55/89 period SMA on the 4-hour chart. Above 1.34 looks interesting, while 1.35 will be the key level to reach the 50 level on the daily chart, perhaps the 55/89 period SMA and maybe the 200/233 period SMA on the 4-hour chart.

Of course, as long as prices do not break out to the upside, we could see further lows. The key is whether or not price develops fresh momentum. If it does, further declines could follow and gain momentum. If not, the sell-off seems to remain weak and prone to quick recoveries.

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