GBP/USD – Where to Short the Pullback?

0
113
GBP/USD - Where to Short the Pullback?

Bearish Continuation Signal: The GBP/USD is signaling bearish continuation with a break below a consolidation low and the previous low on the year around 1.5585. It is starting this week with a new low at about 1.5540. As we got into the 12/8 European session, price pulled back as we can see in the 4H chart.

GBP/USD 4H Chart 12/8
gbpusd 4h chart 12/8
(click to enlarge)

Pullback: The 4H candle rebounding from 1.5541 is relatively sharp and we can expect some near-term rally during the rest of the 12/8 session. However, with a fresh low on the year, GBP/USD is likely in a bearish continuation mode, so this rally might be faded as it tests the just-broken consolidation.

Bearish Confirmation: If the market is to remain bearish price should probably hold under the 1.5675-1.5680 area, where the 100-, and 50-period SMAs reside, and where a falling speedline will present resistance. The RSI should also hold below 60.

Consolidation/Correction Scenario: A break above 1.57 however would likely put cable back into consolidation mode, with a possible bullish correction outlook because the current bearish breakout would be assessed as a false-breakout.

Trade Assessment: Now, let’s say we get a trade plan to short at 1.5670, with a stop above 1.57, let’s say 1.5720, giving us a 50-pip risk at stop-loss. The first target would be the 1.5550 area, which is 120 pips and gives us a slightly better than 2:1 reward to risk ratio. Since a bearish continuation outlook suggests price might break below 1.5540, the potential reward is higher, perhaps to 1.55 (170 pips), giving us a slightly better than 3:1 reward to risk ratio for the aggressive outlook.

Lack of Fundamental Factors: After last week’s BoE meeting, the GBP has a lack of fundamental factors this week. The manufacturing production data in the upcoming European session (12/9) could introduce some volatility, but because it is not so timely (for October) it should not have much impact on GBP/USD’s direction this week.

UK Manufacturing Production m/m (October)
Forecast: 0.2%
Previous: 0.4%
uk manufacturing
(click to enlarge; source: forexfactory.com)

The technical levels of 1.5680 (SMA cluster and falling speedline), and the 1.57 handle, will be key in determining whether GBP/USD is still bearish after last week’s bearish breakout.

Previous Post by Author: AUD/JPY Fails to Continue Trend; Approaches Range Support

SHARE
Previous articleBitcoin POS System Coin of Sale Integrates into GoCoin Platform
Next articleBlockchain.INFO Releases New Version, Promises More Security
Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.