GBP/USD: follow up tech analysis.

GBP/USD: The Cable had a bullish week and broke up and out from a recent 4hr chart triangle and targeted the 78.6% fib of the recent swing low move. Price action then paused and pulled back and in this post I discuss the key S/R levels to monitor in coming sessions.

I posted an article last week suggesting traders watch out for potential bullish action on the Cable given I had noted two technical clues that pointed to just such a possibility. The two technical features I had noted are outlined below and the resultant bullish move gave over 200 pips:

  • Firstly, the print of a bullish ‘engulfing’ weekly candle or ‘Railway Track’ pattern that formed off the major support base of 1.30. Both of these patterns supported the potential for a bullish-reversal.
  • Secondly, there was the appearance of a ‘Double Bottom’ off the 1.28 region that also supported bullish-reversal.

Price action paused: Last week’s bullish move gave over 200 pips before price action paused. So, why the pause and what now?  I can see three technical reasons for why price action peaked and then pulled back;

  1. The US$ started to pick up steam last week and this put pressure on the GBP/USD:USDX4
  2.  The GBP/USD rallied the 200 pips up to the 78.6% fib but this simply exhausted the bullish run. Trend lines and trends don’t run in straight lines forever!GU4
  3. The EUR/GBP had pulled back to its 61.8% fib, exhausting its bearish run, and price bounced back up thereby putting pressure on the GBP. If you check the date at which the EUR/GBP bounced up off its 61.8% fib you will see it is the same date as the GBP/USD bounced down from its 78.6% fib!EG60min

So, what now?

To address this question it is important to remember the recent history of the Cable. The Cable has been trading under a bearish trend line for the last 8 years, since peaking at 2.1161 in Nov 2007:GUmonthly

Price plunged during the following 2008 year with the Global Financial Crisis and bottomed near the whole-number region of 1.35. Price action chopped higher after that though and made another peak at 1.7191 in July 2014 but has traded lower since then. In fact, the recent Brexit vote result triggered further lows for the Cable down to the 1.28 whole-number region. This price action has resulted in another bear trend line, of 2 year duration, forming up since that 2014 peak:

GUweekly

IMHO, the 1.28 to 1.30 region remains a critical region for the GBP/USD pair and these are the main levels on the Cable that I will be keeping in focus in coming sessions. Other noteworthy S/R levels highlighted on these charts include: 

Bullish targets: above current price:

  • The 1.35 S/R level and GFC low region.
  • The 1.40 S/R level.
  • The 1.45/6 level which is near the weekly chart’s 38.2% fib and the 2-year bear trend line.
  • The 1.50 S/R level which is near the weekly chart’s 50% fib.
  • The 1.55 S/R level which is near the weekly chart’s 61.8% fib and the 8-year bear trend line. 

Bearish targets: below current price:

  • The 1.30 S/R level.
  • The 1.28 level which is a recent ‘Double Bottom’.
  • The 1.20 region is previous S/R from 1984/5.
  • The 1.05 region which is near the monthly chart’s 100% fib.

So, what to watch from here?

With that context in mind I can now elaborate on the levels worth watching in coming sessions:

The 1.30 level: I have re-fibbed the 4hr chart to map the swing high move of the last two weeks and note that a 61.8% fib retrace would bring price back to near the key 1.30 level so this remains in focus next week for any make or break activity. Thus, if the US$ remains strong next week and pushes up through its 95.50 level then I would be expecting pressure to remain on the GBP/USD and I’d watch for a push back down to the 1.30 level:

GU4

The 1.28 level: Any break and hold below this 1.30 level would then have me looking for a move back to test the the previous low near 1.28. I would watch this level closely for any make or break activity and for the potential of a ‘Double Bottom’: 

GUweekly

Bear Flag? This 1.28 would be a critical level for the Cable as any break and hold below this support would give shape to a potential Bear Flag and suggest a much deeper pullback:

GUweekly

In summary, I’m watching for:

  • Any continued US$ strength to help shape a 61.8% fib retrace on the GBP/USD down to 1.30.
  • Any break and hold below 1.30 would have me watching for a test of the recent low near 1.28 and for any potential ‘Double Bottom’ activity.
  • Any break and hold below 1.28 would have me looking for a possible Bear Flag.

Price is trading above the 4hr Cloud but below the daily, weekly and monthly Clouds.

The weekly candle closed as a small bullish candle with a long upper shadow after last weeks ‘engulfing’ and Railway Track candle patterns that both supported bullish-reversal.

There is a Bank Holiday in the UK on Monday and the first piece of high impact GBP data isn’t until Thursday with Manufacturing PMI and then Construction PMI on Friday. There is also Chinese PMI data on Thursday and NFP data on Friday to monitor as well.

  • I’m watching for any new TC signal and the 1.30 level.