(Please click on the accompanying chart to enlarge.)

As of Tuesday evening in New York, price action on the 4-hour GBP/USD chart, as shown, has reached the top of what tentatively may be considered a falling wedge formation, or possibly a pennant pattern. This consolidation occurs after a short upward correction in the overall downtrend. Since these formations are most often considered continuation patterns, a strong breakout and close above the upper line may possibly signify a continuation in that short upward correction. Watch for any potential fast break above, in which case resistance to the upside resides around the 1.7970 and then 1.8125 regions.

UPDATE: As of early Wednesday morning (New York session), price did indeed break out of the wedge and just reached up to the first noted resistance level around 1.7970 before retreating a bit. Watch this pair for any upward continuation of the wedge break.

UPDATE 2: As of Wednesday early afternoon (New York session), price has continued up on its wedge break, closely approaching the above-noted 2nd resistance level around the 1.8125 region before retreating. Watch for further potential bullish activity if this 2nd resistance level is broken in a significant manner.

UPDATE 3: As of late Wednesday afternoon (New York session), price has reached all the way up to a high of 1.8240 on the wedge break before retreating a bit once again. In the event of a subsequent strong break above this resistance, price should target further resistance up around the 1.8400 region.

- James

James Chen is the Chief Technical Analyst at FX Solutions, a leading Forex broker. He is also a registered Commodity Trading Advisor (CTA) and a Chartered Market Technician (CMT) Level 3 candidate. At FX Solutions, Mr. Chen writes daily currency analysis, conducts forex trading seminars, and has authored numerous articles on currency trading and technical analysis for major financial publications. His upcoming book, Essentials of Foreign Exchange Trading (John Wiley & Sons), will be released in early 2009.