GBPUSD (Cable) maybe be preparing for a decent move.

The GBPUSD spot fx (cable) rate has made steady gains of late and looks as though it may be gearing up for a possible breakout to the upside. What I like about this is that it also appears to have formed a pattern within a pattern, when this occurs moves can sometimes be dynamic.

The pattern within the pattern is as follows:

1) The larger pattern is the Weekly 'Descending Expanding Triangle' pattern formed over the past 15 months, which may actually be part of a big double-bottom pattern. The actual pattern bears a strong resemblance to the bullish pattern formed on the AUDUSD over the past year, which was covered in detail in the 17 Sept post which can be seen by clicking here. An illustration of the ideal formation can be seen here:

2) The secondary pattern, which has formed as part of the breakout of the above pattern is a Cup + Handle  on the daily chart. Cup + Handle patterns do not necessarily have the greatest success record with regard to pattern reliability, however what I like about them is that they offer excellent risk/reward ratios. The stop level is usually quite close to entry, whereas the upside (if the pattern is successful) is often relatively large. The following illustration highlights an idealised Cup + Handle pattern.

Put the two together, and there is potential for a decent move if this can hold over 1.6000 on a sustained basis. The chart below shows these pattern on the GBPUSD.

There are one or two reservations with this: Firstly and principally the weekly 'Descending Expanding Triangle' pattern does not follow in the wake of a large trend, the prior move is short trend which itself is a reaction off a low following a very large decline. Typically these patterns follow strong sustained trends as per the AUDUSD example. I also prefer these patterns to have largely tracked along the upper line at fairly even spacing, the GBPUSD pattern has touched (or nearly touched) the upper line on four occasions prior to breaking out, however the gap between the third and fourth was very large. -- Perhaps I am being picky, ideal patterns are very rare, however I feel these points are worthy of a mention. The Cup + Handle pattern does look textbook though, and as long as this can sustain itself over 1.6000 (allow a spike or two lower), then this favours a move to around 1.6700.


A quick note re: the SP500: Despite a strong move at the open it once again failed to maintain and hold a move higher, and it also failed to maintain an afternoon push lower, once again closing slap-bang in the middle of last weeks daily closing 1182-1186 range. - dull, dull, dull.