As shown on the daily chart , the pair breached above the 70 at 1.5882 last Feb , showing strong bullish momentum, later the pair continued to rise and broke above 1.5882 while RSI declined .
A bearish divergence means the chart shows rising price, but the indicator highs, in this case the RSI highs are flat or declining,this suggests a lost of momentum, it should be noted that divergences can be extended in a trending market especially with high volatility pairs !!!
Well, the extended bearish divergence is a bullish reversal in short term suggests further gains before possible (final) topping !!
In our case with GBPUSD, after breaking above the 70 level,and topping at 1.5882 the pair continued to rise and topped at 1.5928 , 1.5991, 1.6002 and 1.6062, while RSI continued to decline showing a lost of momentum.
According to daily RSI , a break below 30 would confirm the last top at 1.6062?!!!
With yesterday's close 13 Apr 2012 , According to R% indicator , we have bearish breakout at 1.5840 that suggests further declines and losses towards 1.5600 , a clear break below 1.5600 would increase the risk towards 1.5400/300 levels..
But we still need a daily close below - 1.5840 low of 13 Apr 2012 - to confirm the bearish breakout, remember this level is the pivotal level ( 50% retracement) of the last rally 1.5601 / 1.6062 , so a clear break below 1.5840 should test at least 1.5600 levels ...
1- Once we have a daily close below 1.5840, the next day don't wait for a retracement to short, probably the pair would resume falling without any correction , make you target around 1.5600 , but Next Monday - 16 Apr 2012 - If It doesn't close below 1.5840. we may witness a delay of the down-move testing 1.5970/80 area , that would be another opportunity to short.
2- RSI test to 40 level may push up the pair a little bit testing the broken level 1.5840 , that would be a great chance for taking another short .
3- RSI break below 30 would confirm the top at 1.6062 (possible high of 2012).
4- Only a daily close above 1.6062 would eliminate this negativity , suggesting that there's no enough momentum to break down , and the pair needs to move higher to gain the needed momentum to move down....
Saturday 14 Apr 2012 03:12 PM