• GBP/MXN has corrected back after breaking out of a bullish Pennant pattern.
• Further weakness could bring into doubt the validity of the pattern, whilst strength could still see it hit the target.  

GBP/MXN formed a bullish Pennant continuation pattern between August 28 and September 4, during its uptrend within a rising channel. 

Price broke out of the top of the pattern and was expected to reach an upside target of 27.11,  the 0.618 ratio of the length of the “pole” – the steep rise which preceded the formation of the pennant – extrapolated higher. 

GBP/MXN 4-hour Chart 

Price failed to reach its target, however, and has since fallen back down to trade in the lower 26.00s. 

It is now at a critical point. Further weakness could invalidate the Pennant pattern, whilst a recovery could see it eventually reach its upside target. 

The Relative Strength Index (RSI) momentum indicator has fallen to quite a deep bottom during the last sell-off (shaded orange circle) when compared to when price was  at a similar levels previously. This suggests quite strong bearish momentum. 

However, the trend both in the short, medium and long-term for GBP/MXN is bullish, and given “the trend is your friend” this suggests the odds favor more upside. 

A close below 25.90 would probably invalidate the Pennant, whilst a recovery above 26.56 would provide confirmation the pair was rising up towards the pattern’s original target of 27.11.