Thursday, 30 January 2014

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. 



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