GBP/USD has sold off in the past few trading days, signaling that a longer-term downtrend is starting to unfold. Before that happens though, GBP/USD could still pull back to an area of interest seen on the 1-hour time frame.

This is located around the 38.2% Fib and 1.5600 major psychological level. Notice how price moved sideways around that area, as buyers and sellers couldn’t decide where to take the pair at that time. This time around, plenty of sell orders are likely to be waiting in that same area, which makes it a good resistance zone.

Stochastic is already in the overbought region, suggesting that pound bears are in control. In fact, a bearish divergence has formed from the previous high around August 21 to the recent high.

Shorting at 1.5600 with a 50-pip stop and a 100-pip target near the previous low at 1.5500 would be a 2:1 trade.

By Kate Curtis from Trader’s Way