GBP/USD Showing Weakness With Short-Term Head And Shoulder Forming

Immediately after the BoE announced 50bn instead of 75 bn pounds of additional bond purchase (QE3), the GBP/USD got a boost. However, this was indeed short-lived. It was noted that inability to break back above 1.5875 would be seen as a sign of weakness. While the market did crack this level, the 1H chart shows the dynamic as the market attacked it. There were rejections and the market eventually exhausted for a downturn through the rest of the 2/9 US trading session.

The RSI failed to push back above 60, another sign of weakness in momentum. The market is now pushing below the 200 hour simple moving average. The RSI is falling below 40. In the meantime, market action appears to be forming a head and shoulder pattern with neckline at the 1.5790 pivot.

The 4H chart shows some bearish targets. A break below 1.5790 (neckline) opens up 1.5720 in the near-term (in the same or upcoming session). Then if this is cleared, we are looking at 1.5662 (38.2% retracement), and 1.5580(50% retracement) as next targets and support levels to monitor. If the 4H RSI fails to break below 40, that is a sign of weak bearish intent, but if it does fall below, we have confirmation of at least a loss of bullish momentum, which opens up the reversal scenario.