The GBP/USD rallied today paring some of the losses sustained after yesterday's BoE announcement. Based on this 1h chart we see the final leg of a Head and Shoulders forming. This is a particularly interesting Head and Shoulder due to placement of the neckline at 1.5085. We have seen this level act as a support and resistance area over the past week and because of this it should add some excitement to the formation. If the pair does indeed complete the 3rd part of the Head and Shoulders formation, we would be looking for a reversal of 245 pips, which represents the distance from the neckline (1.5085) to the crown of the head (1.5330).
I do not expect the pair to break the neckline initially due to its sitting on a known support line. Look for a more prolonged consolidation around the neckline before any major decline; however any type of unexpected news event could easily trigger the pair to suddenly move. Also be cautious of leaving any limit orders open as we near the end of the week. At the current rate, it is possible that the pattern will extend to next week's trading session. Due to the gap in time and world events which may occur, there is a high degree of volatility and uncertainty on the first day of trading, especially in the first few hours of the open. It would not surprise me if the pair takes its time before finally descending below the neckline, but once it does, it could signal a further decline that will more likely than not reach our target area.
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