GBPUSD rallied to 1.6115 highs in the Asian session only to fall in a vicious sell-off to 1.5980. However, 15980 has become a strong level of support this week, best seen on the hourly (or 5-minute) chart. A bounce off this level targets the top of the consolidation range at 1.6040/50. A break there targets highs again above 1.6100.
If GBPUSD is to continue its bear trend, price will need to break and hold below this 1.5980 level.
The EURGBP made new lows last week at 0.8673 respecting the 0.8670 major short term support level on the daily chart. The pair then bounced out of that level in a corrective rally to 0.8800 ahead of the 38.2% Fibonacci retracement level of the entire breakdown from 0.9040 - 0.8673 at 0.8814.
However, instead of making new lows, the EURGBP made a higher high as the market opened on Sunday at 0.8679. When the pair broke above the 38.2% Fibonacci level (circled above) after the failure at the lows, that was the signal that the pair was headed higher. And in fact it did making a session high today at 0.8670.
Breaking through the 61.8% Fibonacci level, the pair look like it will target 0.8800 and break above to test 0.8810/20. Only a break above shifts focus back to bulls.
Bernanke killed the US dollar yesterday. UK GDP met expectations of minimal growth but growth nonetheless when most market participants, myself included, were expecting a contraction. US GDP was less than expected. All this has built a nice fundametal case for cable bulls. And the charts support.
Today’s session sees a nice correction in the $GBPUSD which is fully expected and healthy when a pair rallies 250 pips in 1 day. So far the 50% Fibonacci level has held up as nice support. Cable remains bullish above 1.6592. And I have more confidence in GBP bulls than USD bulls for several reasons:
The pair made 3 attempts to break below 1.6500 and each time was met with bids at 1.6430, the previous resistance level now turned support.
On this latest wave to the upside, 1.6500 held as support.
The fundamentals have deteriorated for the USD. The Federal Reserve welcomes a weak dollar to support the economy and with inflation still relatively subdued in the United States, the $FED is in no hurry to tighten monetary policy. Today’s US GDP report indicates further that the economy still needs support in the eyes of the Federal Reserve.
The market expects an interest rate hike from the Bank of England much sooner than from the Federal Reserve.
Bulls target 1.6750 for a break above while bears target a move back to 1.6500. Trade what you see.
While most of the market is looking ahead to the US FOMC meeting, sterling traders await the UK GDP number which will be released ahead of the Fed announcement. Today’s UK CBI manufacturing number was dismal and indicates to market participants that the British economy may have been weaker than the market expects in the 1st quarter of this year.
After languishing during Monday’s session above 0.8800, the EURGBP broke out after the release of the poor UK CBI numbers as sterling took a hit on the news across the board. This breakout rally made highs at 0.8903 before falling back to the 38.2% Fibonacci retracement level late in the NY session.
If UK GDP is weak, fully expect price to break out and test the 12-month highs at 0.8940. A break above that level sees price complete the quarter to 0.9000, a call I made way back in January. However, if price surprises to the upside, price will retrace this rally back to 0.8850. A break of that level to the downside sees price go to 0.8800.
Remember, trade the market reaction (price action) not the news headline.
The GBPUSD closed last week above 1.6500 indicating that its breakout to 18-month highs at 1.6600 is legitimately bullish.
The GBPUSD daily chart shows the breakout rally had no retracement. Therefore, I do expect the pair to retrace to 1.6400 before heading higher towards 1.6750. Only a daily close above 1.6575 after Monday’s trading session will change this short-term bias. That did not happen today.
Instead, cable dropped below 1.6500. Since the pair managed to hold above this level last week after breaking above it, this was a signal of weakness. This signal panned out as the pair dropped to an intraday low of 1.6466. Though price has sinced bounced back to 1.6500, price remains below the 1.6500 large quarter point signaling that more weakness could be in store for the GBPUSD.
Price targets 1.6450, 1.6430, 1.6380 to the downside and 1.6550, 1.6600, and 1.6625 to the upside.
This week all eyes will be on the FOMC. On Wednesday we will hear from the Federal Reserve as they will announce their decision on interest rates and US monetary policy. On the same day, we will get UK Q1 GDP and consumer confidence. Thursday is US GDP. The market will compare the health of both economics and we should see it played out in price. If the FOMC and US GDP are both optimistic or hawkish, expect further declines to be supported into 1.6380. However, if the Fed disappoints or UK GDP surprises to the upside, price will return to the 1.6600 highs.
Yesterday, Finnish elections and Greece soured the euro and supported the EURGBP’s descent to 0.8750. An expected correction after the failure at the 0.8920 highs, the pair remains bullish as it finds support at 0.8750 and begins to rally off the lows at 0.8740.
The EURGBP pair found support once again at the 61.8% Fibonacci level from the weekly chart at 0.8735. Despite the near-reversal, the pair remains well-supported and in today’s trading session has moved off the 0.8750 lows as it consolidated above 0.8750 at yesterday’s close. The bullish behavior around 0.8750, as price failed to push lower, prompted buyers to step in.
Judging from the hourly chart, the pair has plenty of room to stage a corrective rally to 0.8810. However, I consider a break above 0.8800 a bullish development and would expect a close above the whole number to prompt further gains toward previous resistance at 0.8840/50.
After a blank economic calendar from the UK, the market looks ahead to the release of the Bank of England (BoE) meeting minutes tomorrow. If there are no hawkish clues, the market will be very disappointed and could help send the pair past 0.8850 and back to the 0.8920 highs. On the other hand, any hints of more hawks in the BoE beyond the expected 3 (Sentence, Weale, and Dale) and the EURGBP could find itself below 0.8750 to challenge the lows at 0.8720.
The EURGBP looks like further declines. Even though it managed to end the week above 0.8940/50 previous resistance, it 1) respected the 50% Fibonacci level on the bounce after the breakdown from 0.8950 highs and 2) made lower highs on each bounce out of the 0.8810s lows.
A break below 0.8800 targets 0.8750. A hold above 0.8800 targets 0.8900.
The GBPUSD also looks like it has put in a top at 1.6430, which is the 38.2% Fibonacci level on the monthly chart. Even as price continues to hold above 1.6250, it is the failure at 1.6400/30 that gives the pair an increasingly bearish outlook.
Bears must hold below 1.6250 to build the momentum needed for price to target the 1.6182 50% Fibonacci retracement level. As long as price continues to remain below 1.6325 at the market open, price is likely to decline towards the 1.6250 support. A hold above 1.6250, however, will have price targeting 1.6400/30 highs again. A break above the highs targets 1.6500. However, only a daily close above 1.6430 will keep cable bullish.
The GBPAUD is a little more uncertain. After its breakdown below 1.5750, the pair became rangebound between 1.5440 and 1.5650. However, during Friday’s trading session the GBPAUD finally broke below the range bottom to a low of 1.5415. However, the pair closed the week back at 1.5440 signaling to me that this was merely a range extension to the downside rather than a breakdown. In addition, as GBPAUD broke to new lows, the AUDUSD failed to break above its highs at 1.0580.
In my opinion, this pair remains rangebound. Watch these various Fibonacci retracement levels to see if the downside momentum remains. However, I anticipate GBPAUD will rally back to the top of the range at 1.5650 as long as AUDUSD remains below 1.0580. A break above 1.5670 high targets 1.5750. If price remains below 1.5440, expect price to target 1.5300 support.
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Price rallied to the highs at 1.6340 and still managed to hold resistance. This time, however, prices broke down to the 50% Fibonacci retracement level at 1.6187. This was the much anticipated sell-off, I had been waiting on all last week.
Now that prices have reached these levels, expect a bounce back towards 1.6250. If price remains weak, it should find resistance at 1.6240/60 before another wave down towards the 61.8% Fibonacci retracement level at 1.6150. Only a break above 1.6280, changes the intraday bearish sentiment.
Short-term, however, cable still remains bullish even at current levels around 1.6200.
Despite finally breaking the 2010 1.6300 high, the $GBPUSD was unable to stage a breakout rally as many traders expected if price was to move above 1.6300. Rather, cable has been looking exhausted though it still does manage to maintain its bullish bias as it closed last week above 1.6250. Inflation and revelations of a 3rd BoE hawk have bolstered the $GBPUSD currency pair above the large quarter point at 1.6250. However despite the strong close, $GBPUSD opens the week trading below 1.6250 as the market opens. Choppy price action around 1.6250 suggest that the market is already looking ahead to the Bank of England interest rate announcement on Thursday. Should monetary policy remain unchanged, we could see the now anticipated sell-off in the $GBPUSD finally materialize. If so, 1.6100 remains the big level of contention between the bulls and the bears if the Fibonacci levels on the daily chart fail to hold. Below 1.6100, 1.6030 and 1.5990 become the levels to watch to the downside. If the BoE surprises the market with an interest rate hike, $GBPUSD will breakout towards the 1.6500 large quarter point and major half point.
The economic calendar is very light at the beginning of this week. Cable, therefore, will move based on the technicals. Immediately, at the market open, watch to see if 1.6235/40 support holds. Also, watch the Fibonacci retracement levels on the daily chart to see where bulls could step in ahead of the BoE interest rate announcement.
The $GBPAUD continues to hold the range it has forged out for nearly 2 months.
Price hit the top of the range at 1.6120 on Friday, found resistance and has since moved towards the middle of the range at 1.5950. If price moves below 1.5950, price will fall to the bottom of the range between 1.5830 – 1.5750. If price finds support above 1.5950, price will move back to the top of the range between 1.6070 – 1.6120.
The $EURGBP continues to remain bullish. Last week, I was concerned that the bears had stepped back in when price broke support at 0.8470. However, price did manage to find support at the level (on the candlestick daily close) despite the spike lows to 0.8458 and move higher to end last week near the 0.8600 highs.
As the new trading week opens, the $EURGBP maintains it bullish bias as it continues to find support at the former high of 0.8590 and trades around 0.8600 whole number. Bulls look to the highs at 0.8650 and 0.8670. Above there, 0.8700/50 remain the ultimate bull target. Fundamentally, the edge falls to the euro. Last week, after maintaining its monetary policy, the European Central Bank clearly signalled its intention to hike interest rates with very hawkish rhetoric during its press conference. As such, euro has caught a bid across the board. Several banks have now changed their calls to euro-bullish as a result of the fundamental shift in the market by the ECB. It also looks like an inverse head-and-shoulders chart pattern has formed on the daily chart of the $EURGBP which also supports the possibility of a breakout rally in the$EURGBP.
Last month UK retail sales dipped to its lowest levels in over a year. And the market barely reacted, registering a low of 1.5838 before heading back higher to 1.6000. We have since had higher lows while maintaining resistance at 1.6010. The result has been an ascending triangle on the hourly chart. Though this is a bullish signal, bulls should be careful heading into tomorrow’s GDP release which is expected to be dovish.
If the pattern of higher lows breaks, watch the orange bid zone between 1.5865 - 1.5833. A breakdown below 1.5830 targets 1.58, the 100-day SMA and the 38.2 Fibonacci retracement level. A breakout above the 1.6059 high targets the top of the blue offer zone at 1.6100 level. Above there, bulls target 1.6250.
UK GDP is released Tuesday at 9:30GMT (4:30AM PST). Traders will look to see if GDP follows retail sales lower. But bears shouldn’t get too excited if last week’s muted market reaction to lower retail sales was any indication. Watch the levels on the charts and trade what you see.
The 2nd trading week of the year ended very bullish for cable. But the USD is not that weak…yet. There is room for the GBPUSD to correct lower. As the market opened today, cable tried to go higher but is succumbing to sellers defending 1.5900. That level is only a matter of time though. I like how 50 put it during his webinar chat today:
A move lower is high probability if 1.59 holds but it remains to be seen if there will be another stab at the lows or a correction for another move higher.
My vote is for the latter.
The most surprising bull rally last week has been in the GBPAUD. I expected a corrective rally to the previous low at 1.5766 when spike lows into 1.5150 held. But the continuing breakout beyond that level was unexpected in its strength and resiliency as we see very shallow retracements all the way up to the 1.6080 highs.
Watch for 1.6000 to hold on support on dips. A decent retracement sends us to the 1.5900 level before heading higher. A break below there targets more significant retracement to 1.5650s. A move higher targets 1.6150 previous highs.
The EURGBP also had a surprise rally for over 300 pips last week back to the 85 pence level. But sellers were waiting there and defended that level very staunchly as the pair made a high at only 0.8499. The ensuing selloff took the pair all the way down to 0.8390, the 50% Fibonacci retracement level of Friday’s move. EURGBP bounced off those lows moving higher into Friday’s close. But as the week opens the pair continues to find resistance at the 50% Fibonacci retracement level of the selloff from the 0.8499 high.
Thus, the EURGBP remains bearish. The rally to 0.85 allowed prices to reset for another stab at the lows. Downside target remains at 0.8250 then 0.8000. Uber bears have made calls for 0.7800 and 0.7500. I maintain my stance that only price above 0.8500 changes the bearish bias of this pair.
I was short the GBP/AUD this morning. So how did I miss the beauty of a trade?
Things I Did Right
I scaled out of the position at the lows and booked 101 pips.
I moved the stop of the remaining position to break even.
Things I Did Wrong
This is not the market environment to hold on to trades. I recognized that today as I traded cable today perfectly by booking profits on the entire position. I scaled out but very quickly within 10 pips rather than until the next area of resistance. With my short position this morning, when the GBP/AUD hit the lows I should have scaled out quickly and closed the entire position near the lows rather than holding on to see if it would breakdown further.
Rather I was stopped out at break even when the pair bounced off the lows and even tried to add. But my added trades were too early. I added at the 38.2% Fibonacci level. With this pair, that is way too aggressive. I should have waited until price reached and broke above the 50% Fibonacci level before taking any short trades.
Since my added entries were too early, I was stopped out of those quickly (per my rules which is OK). However! The psychological capital that I lost was more tremendous. Because I had taken those quick small losses, I refused to take the trade when it finally did set up perfectly.
I didn’t trust the chart. I psyched myself out thinking, “what if the pair goes even higher because that kept happening when I added earlier.” Trust the chart!
Moral of the story
Trust the chart and the setup! Know the pair’s psychological levels as reflected by the Fibonacci levels. I know now.
The lows today find support at the 61.8% Fibonacci level of the breakout from 1.5538 to 1.5729. If we get new lows on the day, cable will break down towards the yellow lines indicating different levels of possible support at 1.5580, 1.5538 and 1.5500. My ultimate target is, of course, the large quarter point and major half point at 1.5500.
The EURGBP broke its range to the downside. When exhausted at the 0.8150 level (after the spike low at 0.8140), prices found resistance at the former range bottom at 0.8170 level.
Now today, on news of better-than-expected German GDP and dismal US exsiting home sales, the EURGBP rallied past the 61.8% Fibonacci retracement level. However, this time, I remembered the moral of yesterday’s missed trade and paid attention to the moving averages on the hourly chart. In one instance, we had up-to-the-pip resistance. In the next, we had spikes above the 200SMA but closed below each time followed by a subsequent bear candle.
Just goes to show that it pays to study your losers even more than your winners.
Inspired by John Lee (@WeeklyTA), I will try to chronicle my missed trades here. Hopefully, I’ll learn something and remember it for next time.
Not only did I miss this trade this morning, I got stopped out of my shorts on that spike high to 1.5616 for -33 pips.
What I Did Right
I was patient with my entry. Since the market just opened I waited and allowed price action to develop despite price correcting to 50% of Friday’s bearish price move.
When price breached the 61.8% Fib of Friday’s move, I drew the purple Fibs of the entire move down from 1.5671 to 1.5640. I went short at the 50% Fib.
I set tight 20-pip stops before going to bed.
What I Did Wrong
I didn’t pay attention to the 200SMA. If prices broke above the 61.8% Fib, I forgot to pay attention to the moving averages. Price above 1.5600 was still excellent opportunity to go short, not get out of shorts like my tight stops had done.
Moral Of The Story
Be very critical and meticulous when looking for areas of support and resistance. Don’t forget about those moving averages on the hourly chart.