Analys från DailyFX
GBP/USD Technical Analysis: Bear Flag Resistance Test
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Talking Points:
- GBP/USD Technical Strategy: Flat, new short setup identified
- Sterling continues to be one of the few currencies showing weakness against USD.
- SSI remains stretched in the Cable at approximately +1.79-to-1 and this is bearish; to check out our real-time SSI, please click here.
One of the most profound themes in markets over the past two months has been US Dollar weakness. This has become such an intense development that even a massive increase to European QE has been unable to offset the Dollar selling as EUR/USD has continued to strengthen. This USD weakness hasn’t been all bad, as American equities have continued to hold on to support after a frightening start to the year, and we’ve even begun to see a semblance of short-term strength in commodities, which can be helpful to numerous economies around-the-world, particularly those of the emerging market variety.
But one of the few currencies that have been even weaker than the Greenback over this two-month period has been the British Pound. With the Brexit vote looming in the UK a short 2.5 months away, traders have continued to treat the Sterling with an element of reticence that’s often reserved for potentially ‘game-changing’ geopolitical events. There’s just one problem, nobody quite knows the consequences of what a Brexit might bring, or what impact it may carry through for the UK economy. In the meantime, traders can refer to the chart to look for favorable setups, and in the GBP/USD we may have the re-emergence of the down-trend as we’ve recently seen yet another bear flag break (bear flag channel shown in red on the below chart).
The short setup at current would be an iteration of selling resistance at old support with not only the under-side of this bear flag, but also prior price action. The current price zone around 1.4152 is also the 61.8% Fibonacci retracement of the most recent major move, taking the February 2016 high-low range. This can open the door for stops to be cast just above the previous swing low, using the 1.4217 Fibonacci level as basis. Traders can look to place stops at 1.4225 with targets cast towards 1.4078 (prior price action swing low), 1.4031 (76.4% retracement of that same most recent major move), and then 1.3917 (the 27.2% extension of the prior major move).
Created with Marketscope/Trading Station II; prepared by James Stanley
— Written by James Stanley, Analyst for DailyFX.com
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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