GBPUSD Ascending Channel (Feb 27, 2015)

At the same time, a bullish divergence is playing out, after stochastic made lower lows while price drew higher lows.

The pair could make a strong bounce off support at the 1.5400 major psychological level and move up to test the top of the channel around the 1.5550 minor psychological resistance once more. Stochastic is almost in the overbought region though, which suggests that buying pressure might weaken in a bit.

If so, pound bears could take over and push the pair below the bottom of the channel. A strong break below the 1.5400 major psychological level would confirm a downside break and indicate a potential reversal. Before the pair heads any lower, a pullback to the broken support area might still be possible and offer a better opportunity for a short setup.

The path of least resistance is to the upside, as the pair has been in a steady uptrend for the past few weeks. It would take a considerably strong market catalyst to trigger a breakdown and sustain the selloff. So far, the cautious bias shared by Fed Chairperson Yellen in her recent testimonies was enough to keep dollar gains at bay.

Bear in mind though that a couple of Fed officials also gave testimonies recently and had a relatively upbeat bias, citing that the US central bank might be on track to tighten as early as June. While Yellen clarified that they would change their forward guidance to let market watchers in on what the Fed plans to do next, some traders still priced in strong expectations for an upcoming rate hike.

The event risks for this trade today include the US preliminary GDP report, which might show a downgrade from 2.6% to 2.1%. There are no major reports lined up from the UK today.

By Kate Curtis from Trader's Way