Rectangle formation advocates volatility contraction

  • A break of the Darvas Box invites volatility expansion in the asset.
  • The short-term EMAs are overlapping to the cable prices, which signals a consolidation ahead.
  • A (40.00-60.00) range oscillation by the RSI (14) is advocating a rangebound phase going forward.

The GBP/USD pair is displaying a lackluster performance in the Asian session. The asset has been auctioned in a narrow range of 1.2257-1.2279 and is constantly hovering around Friday’s closing price at 1.2272. On a broader note, the cable is displaying back and forth moves from the past week after a responsive buying action below the psychological support of 1.2000.

On an hourly scale, the asset is forming a Darvas Box in a range of Jun 17 low 1.2173 to June 21 high at 1.2324. The formation of the above-mentioned chart pattern indicates a slippage in the standard deviation, which is followed by a breakout in the same.

The 20- and 50- period Exponential Moving Averages (EMAs) on similar level around 1.2270 are overlapping the cable prices, which strengthen a consolidation ahead.

Also, a (40.00-60.00) range oscillation by the Relative Strength Index (RSI) (14) is advocating a range-bound phase. Although the momentum oscillator is backing a rangebound move, a volatility expansion cannot be ruled out going forward.

An upside break of the Darvas Box at 1.2324, which is the June 21 high will strengthen the cable bulls and will drive the asset towards June 16 high at 1.2407, followed by June 10 high at 1.2518.

On the flip side, the pound bulls could lose their strength if the asset drops below the previous week’s low at 1.2161, which will send the asset towards June 16 low at 1.2041. A breach of the latter will drag the asset towards the psychological support at 1.2000.

GBP/USD hourly chart

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