The pound sterling fell for the fourth straight day on Tuesday as the U.S. dollar continues to make broad gains. Tuesday’s action was notable because GBP/USD declined below the 200-day moving average. The last time sterling fell below the 200dma, it went on to fall 6000 pips in the following two months.

We talked about cable just last week, noting that it was setting up for a big move. We recommended pivoting around 1.6378 and that proved to be good advice. After a quick headfake to just above 1.6400, it fell precipitously. We even warned about a false breakout. If you had sold at 1.6350, you would have made nearly 400 pips by now.

Sterling has fallen below the range we outlined there and the measured target of that move is 1.58, leaving a potential for 200 more pips of profits. We caution that it’s a dangerous market at the moment because of the lack of liquidity around the holidays. Keep your stops tight.

Let’s take a closer look at GBP/USD and outline some potential scenarios.

We can see the 200-da moving average in red. We also see major support (in blue) at 1.5707. This is a potetial target for the recent move but with the Bollinger Band already stretched and the RSI in severely oversold territory  32, we have a hard time envisioning a fall below 1.157 without a correction a period of consolidation first.

The hourly chart offers reasons for continuing bearishness in the short term.

Here, we see that the slow stochastic has climbed back and in danger of rolling over. The key resistance points we see are noted here. They are 1.6029 and 1.6100. The downtrend is also key.