A look at the USD Majors – GBPUSD

**A Quick Disclaimer**
This article may contain a discussion about entry and exit points using some, but not all of the indicators I look at.  This is for information and educational purposes only, as the trade entry point hinted at has already passed.  I am not a licensed investment rep, I do not currently hold a position in this pair at the time this is published.  Investing carries great potential risk, do so at your own peril.

 

Continuing our discussion, a look at the Pound/Dollar, from broad to narrow.

GBPUSD

A number of years ago I sat down and finally read the space-opera classic Dune, by Frank Herbert.  I was on a sci-fi kick for a year, and soaked up a number of classics that I had never gotten to in my earlier years.  There is a part in the book where the protagonist, while still a fairly young boy, must pilot a craft through an intense sand storm.  I liken this to what it must be like being a sea captain in an unforgivable storm.  Crashing and rolling in all directions, the speed of your vessel is completely nullified by the howling, blinding wind in your face.  Hours of fighting through the terrifying and awe-inspiring power of mother nature.  Finally, when the waves calm, or in the case of Dune, when the dust and winds settle, you realize you are pretty much exactly where you started.  But you are alive, and with calmer travel ahead, you can now be on your merry way.

This is the Pound/Dollar pair to me.  I will admit this one has me stumped in the long term.  Short and intermediate, I believe there are good profit opportunities, as you can ride the ups and the downs to profit, using whatever trading system you have developed that profits best.  However, if you’re looking for that 2 year direction to set the autopilot and ignore, I would be cautious.  I say trade the volatility until you can just stick it in drive and take a nap.

Let’s look first at the weekly chart, going back to around 2000.  After an extended run up for a number of years, the Pound finally took a much needed rest against the Dollar in 2009.  Although the sleep it took was Rapunzel-esque, as the Pound eventually reached, and surpassed it’s previous 2001/2002 lows.  Since this time, we have had an extended rising wedge pennant pattern, which it held until 2013, eventually breaking on the downside.  Since that time, we have had price engulf both high’s and low’s, offering excellent volatility for the trader who welcomes swapping positions.

Shortening our view from a weekly chart to a daily gives us a closer look at the trading range, break out of wedge, and volatility that ensued.  When the wedge was broken, the bulls followed up with a resounding, “aahh, Hell no” and gave us an excellent move back up, but remaining within our overall trading range, telling me that their bark is bigger than their bite.  I am relatively confident at this point that this pair will remain within this trading channel for at least a few more touches.  I am more inclined to believe we will see a move down than up at this point due to the divergence against RSI, which signals a break in the trend, not a trend change.

Below is a zoomed in look at the most recent activity, showing the divergence from the trend. You can also see, although not indicated in the below chart, that the current price is bouncing against the previous wedge trend line which we had drawn on the weekly chart.  This is not uncommon and it’s expected to see resistance when this happens.

gbpusd divergence

So this brings us to our fish-or-cut-bait moment.  As I’m not your stock picker (or in this case forex) I will refrain from suggested levels for entry.  However, using the vast number of indicator tools available (and everyone has their favorites), you can continue to zoom in to the 1 hour and 15 minute charts, or whatever your preferred trading timeline is, and apply those Bollingers, MACD’s, Elliot’s, Wolfe’s, Stochastic’s, RSI’s, Fibonacci’s, or whatever tickles your fancy and play your hand to the fullest.  My intent was more to discuss the intermediate and long-term direction of the pair, because coming soon, we will take a look at the US Dollar as a whole, in relation to these specific major pairs, and figure out if clear skies and open sails are ahead of us, or shall we prepare to weather the storm.

I will say that from a trading perspective, I generally start with these longer charts to help me determine which intermediate and long-term direction may be, and decide if I am looking for a seat on the bandwagon, or plan to trade the corrections against the grain.  I’ve stopped at the daily and 4 hour on purpose.  While I am purposefully avoiding providing entries or exits, I have stated I feel this pair will continue to consolidate sideways on the larger time frames (weekly and daily), and I expect the next move to be back down to the reaches of the trading channel (on the 4 hour and 1 hour charts).  Where you place your entry, that’s up to you.  Completely disagree intermediate bearish assumptions?  Well, that’s the fun of trading, none of us ever get it exactly right, except for those brief moments.  We all know those occasions when we see the tip of that candle wick brush gently across your entry order, only to retreat back like Punxsutawney Phil retreating to his burrow, for fear of his own shadow.  We know we nailed it.  But those are truly few and far between, and a sigh of relief is far more appropriate than a pat on the back; you guys that have been doing this a while, you know what I mean.

Until next time.  I’m expecting to put up my end-of-week market recap and outlook later tonight or this weekend.  Happy trading, and may the pips be ever in your favor.

 

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