After the sharp rally in the past couple of days, GBP/USD is now stalling at a major psychological resistance level, which is also around the yearly highs at 1.7000. Stochastic is moving down, which means that pound bears are ready to take control of price action.

A selloff could last until the next major psychological level or the 1.6900 mark, which would act as support for the pullback. A deeper correction could last all the way until the 1.6700 previous month lows.

On the other hand, a strong upside break would mean that more gains are in the cards for this currency pair. Of course, this depends on how the upcoming UK events (CPI, retail sales, BOE minutes) turn out and whether or not they support an earlier tightening cycle from the BOE.

Going long above the 1.7000 handle with a wide stop and a large long-term profit target in case the UK events are bullish for the currency could be a good swing trade setup. Shorting on a downside break of 1.6950 could pave the way for a short-term trade until the 1.6700 support zone.

By Kate Curtis from Trader’s Way