The GBP/USD monthly chart reveals that it is in a pattern consisting of a large down move from August 2008 to March 2009. Following the down move the GBP/USD chart began to form three consecutive descending lower highs and three consecutive ascending higher lows. The pattern is created from the large push, followed by lower highs and higher lows. This pattern usually suggests that this chart should continue lower at some point. However, quite the contrary could happen due to the breakout bar from November 2013. This was the first bar to close and break out of the consolidation as shown by our blue connecting the three consecutive descending lower highs. Since then, significant momentum has continued from November 2013 to June 2014 creating an up move, which has each lower highs from 01/01/2013, 04/01/2011, and 08/03/2009.
The GBP/USD is now hovering around the 1.70322 price level, which is not only the top of the , but also a major price from 01/11/2005 and three major support levels from 01/01/1997, 03/11/1997, and 01/10/1998. These past levels from the left of the chart give more significance to where the chart is currently trading due to the fact that it is about to completely push upward out of the consolation and into a great amount of open space. Once out of consideration and into open space the GBP/USD could move to the target of 1.87874.
The target of 1.87874 was calculated and determined by two different measurements, both equalling the same price, resulting in a more confirmative target. The first measurement was formulated by measuring the down move with a . When a pattern is triggered to the upside, resulting in several breaks from the left of the chart and a consolidation breakout several shorts begin to get squeezed. Combine this with open space to the upside, the GBP/USD should retrace at least 80% of the initial down move creating the target of 1.87874.
The second target, also hitting the price target of roughly 1.87874, was formulated by measuring the width of the consolidation from the first high and the first low after the down move, shown by the purple line closest to the large down move. The width measured by the purple line is duplicated and then connected where the GBP/USD breaks out of the consolidation located on 01/11/2013, resulting in the 1.87874 price target.
As you can see the GBP/USD has the potential to really begin to make a move to 1.8787 if it can breakout and hold above the 1.7035 price level. If it breaks and holds do not be alarmed by a pullback below the 1.70350 price level as it may just be pulling back, where then it will look to trend higher.