Reverse head and shoulders and other bullish technicals in play

Yesterday the GBPUSD broke higher and in the process cut across a neckline on a reverse head and shoulders formation.

Now personally, for every H&S that reaches measured targets (this one targets near the 61.8% retracement level at 143.86) there are many that fail to reach the targets. So be careful in thinking "143.86 here we come. Book the holiday".

Having said that, I take the view that the break of the neckline is a break of a trend line, and more often that does lead to a move in the break direction. The GBPJPY broke yesterday and the pair has continued the push higher today.

What determines if you reach the target is the targets along the way. In the move higher today, we are seeing further steps in the bullish direction.

Looking at the hourly chart (with overlays on top), the price has:

  • Moved above the 100 hour MA (that is the line currently at 139.825).
  • After some pause above and below the 200 day MA, it is has based and moved away from that MA (at 141.18)
  • Over the last 5 hours, the price has moved above the 100 bar MA on the 4-hour chart at the 141.779 level currently.

Like the 200 day MA, the momentum on that break of the 100 bar MA on the 4-hour chart at 141.78 is being tested. The price remains above the line over those 5 hours, but it is not running to the upside. Breather? Probably.

If the price can hold that MA, that is great news for the bulls and the trend higher If it breaks below, it is not the end of the world. The 200 day MA below (and break above it today) is more important technically. However, it would muddy the waters a bit. We could see a corrective move lower and a retest of the 200 day MA.

Holding the close suppor and on the topside, the next key targets comes in at:

  • the 50% of the move down from the mid-December high at the 142.447.
  • Then comes the 200 bar MA on the 4-hour at 143.459 and
  • The 61.8% (H&S measured target) at the 143.86 area.

That is how a H&S measured target gets reached. It still is about taking out the closer targets, one step at a time.....