GBP/USD Price Analysis: Chaos emerges on inside candle formation

• A formation of an inside candle pattern around the trendline has increased anxiety among investors.
• The cable is oscillating between the 20-and 50-EMAs.
• A range shift move by the RSI (14) indicates that the downside momentum has disappeared.

The GBP/USD pair has witnessed fresh demand around 1.1310 in early Asia and is aiming to overstep the crucial resistance of 1.1340. The pound bulls are having an edge of the risk-appetite theme over the greenback bulls. Meanwhile, the US dollar index (DXY) is displaying a sluggish performance marginally below the 112.00 support, and may witness an increment in volatility.

On the daily scale, the cable has formed an Inside Candle pattern at the edge of the downward-sloping trendline placed from September 13 high at 1.1738. The above-mentioned candlestick pattern indicates a squeeze in volatility and a volatility contraction near the critical area indicates an explosion ahead. Also, it acts as an inventory adjustment formation, which is difficult to confine as accumulation or distribution until a decisive move.

The asset is restricted between the 20-and 50-period Exponential Moving Averages (EMAs) at 1.1245 and 1.1447 respectively.

A range shift in the Relative Strength Index (RSI) (14) into a 40.00-60.00 range from the bearish range of 20.00-40.00 indicates that the momentum is not bearish for now. Also, the oscillator has sensed support around 40.00, which signals that a bullish reversal is on cards.

Going forward, an upside break of Monday’s high at 1.1440 will drive the cable towards September 14 high at 1.1590, followed by September 13 high at 1.1738.

On the flip side, a drop below the round-level support of 1.1200 will drag the asset toward the psychological support of 1.1000. If cable surrenders the psychological support, it will expose to more downside towards October 12 low at 1.0924.

GBP/USD daily chart