GBPUSD - Changing View - Possible Bearish turn.

Only last week, I posted about a piece about possible upside resolution to the recent sideways price action in GBPUSD (Can be seen here). My assumption, was concerning the breakout which I had assumed was a continuation breakout, I had believed that the move was the start to a move higher which would fulfil a earlier forecast I had made from late last year. Now I am doing an abrupt about-turn. 

The failure of the upside breakout as caused me to reconsider my forecast for GBPUSD. It would appear that the market may have rejected the upside breakout, though this has not yet been confirmed technically, - Having looked at the weekly chart, it is clear we have been stuck inside a 'malaise' on this pair. I have cast my mind back to some similar periods where I have seen this sort of malaise on currency pairs (For the purpose of this article I would define a 'Malaise' as a period of relative inaction highlighted by mostly sideways movement and small-bodied candles, even though the candle wicks may spike higher or low).

The price action I am talking about sees the malaise set in for a few weeks following a consistent uptrend. The malaise is finally followed by a breakout to the upside but this is rapidly rejected. The market then goes into reverse of the prior strong trend, and starts to head in a countertrend move. - I have posted a couple of past examples of this below. The first one directly below is the EURUSD in 2010:



The next example comes from EURCHF in 2004:




Now here is the current GBPUSD weekly chart:





The situation shows many similarities with lots of downside 'potential'. I am not going to dwell on the fundamental situation, no doubt the fundamental situation was very different in each case. IF we get some follow-through this week on Cable or next, we could see the start of a sharp correction. If indeed it does happen, I would expect it to unfold as a sharp move to near 1.6000 (Though it may extend to 1.5800), then a rebound possibly back to around 1.62/1.63, then a more serious move lower to at least the mid-1.50s and possibly the low 1.50s.

Of course usual caveats apply: 'There are no guarantees*': The market could continue sideways, move higher, or breakdown then fail. - But as a risk reward trade I think it presents a nice set-up, which could be entered as a small trade and added to if it follows through, with some good upside reward potential.

* There are no guarantees, hence use of sensible Risk Management Practices should always be practices and applied. 


Follow me on Twitter  https://twitter.com/bgtedge
Join my linkedin group 'Trader, Trading & Risk Psychology'

Trading Quotes, Advice, Inspiration No 1: 'Its not a Sprint, its a Marathon.'

Trading Quotes, Advice, Inspiration 

No 1: 'Its not a Sprint, its a Marathon.' 

They say slow and steady wins the race and nothing could be more true of trading and investing: Panicking, Chasing the market, Grabbing at profits, Fear of Missing Out, Over-risking, Looking for the one big trade and missing all the smaller ones. All examples of behaviours which undermine trading performance. It's important that traders remind themselves that if they are to be successful, they need to be in it for the long run.

"Image "Feet Of Runner In Evening Light" by Sura Nualpradid courtesy of  FreeDigitalPhotos.net".

SP500 - Bearish RSI Weekly Divergence - Signalling Concerns of Potential Top!!!

SP500 is showing a potential topping pattern - See above. This is 'Bearish Weekly Momentum'. What is interesting is this is a classic 'textbook' divergence. We don't see these very often, usually they are far more convoluted.

A 'textbook' divergence would see momentum moving to an extreme high (or low) level as the price of the instrument trends to a new high (or low), then a correction in both price and momentum, with momentum correcting to a level between 50-65 (or 35-50 for a low), followed by a move in price back to a new extreme high (or low) with momentum moving to overbought levels above 70 (or below 30 for oversold) but only able to make a lower peak (or higher trough) than before. Thus momentum fails to confirm the new high in price (or the new low), before correcting again.

Going back over the SP500 over the past 25 years I have only been able to find 3 examples of this (2 at tops and 1 at a base). These can be seen below.

Inspirational Poem : The Man Who Thinks He Can

GBPUSD Spot - Breaks out of holding pattern. Is 1.7000 on the cards?

A few weeks back I suggested in a rather long-winded post that GBPUSD was possibly on the verge of a move to 1.7000, or at least the high 1.6000s. Its been a frustrating trade in that time, as cable lived up to its name of 'the widowmaker', a term we affectionately gave it on an FX desk I used to work on. For those of you with the inclinations, that post can be seen here. 

Today's price action has however suggested that the bull move first alluded to in that post may be back on. The price action today, in the wake of very strong UK data, has seen the breakout of a classic 'Bullish Falling Wedge' pattern, one of my favourite trading patterns, this suggests further gains may lie ahead int he coming weeks if not days. 

Some resistance may occur at the old high from December at 1.6603, but a move clear of that would strongly favour continued gains, possibly to around 1.7000, with any move back below today's 1.6450 low, suggesting a pattern failure.  - Longer-term, I'm not to sure, I'd like to see how it performs around the 1.7000 area if it gets there, though currently I favour the idea of a failure around there and eventually lower levels.

Follow me on Twitter
Join my linkedin group 'Trader, Trading & Risk Psychology'