Analys från DailyFX
GBP/USD Technical Analysis: Cable Boxed-In Ahead of BoE
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Talking Points:
- GBP/USD Technical Strategy: Flat, short setup identified.
- The Cable continues to trade in the box developed last week after 6-year lows were printed.
- A Bank of England meeting on Thursday will likely deliver the impetus for the next trend, but traders can watch the current box-formation for early breaks ahead of BoE.
The Cable stole headlines to start the year after multi-year lows were broken as the British Pound saw weakness across-the-board. In our last article, we asked if the Cable had yet hit terminal velocity on the down-trend, and judging by price action, the answer was a definitive no. At the core of this movement were rate expectations for the UK, and as global pressure continue to heat up those rate expectations for the UK continued to dwindle. We hear from the bank and Mr. Mark Carney this coming Thursday, and this could certainly inspire trends in either direction. Should lower inflation forecasts be on the horizon, we’ll likely see even lower-lows, and given the continued SSI reading of +1.63, that could make for amenable short positions.
Near-term price action is neutral as we’ve basically been building in a box for the better part of a week. On shorter time frames, such as the hourly or 4-hour this will appear with ‘range-like’ tendencies and this could be opportunistic as we approach the latter portion of the week. The box of the past week’s price action in GBP/USD is below:
The box itself is a neutral formation; all it really tells us is that buyers and sellers are roughly meeting in the middle. But this could be a fantastic setup for the next move (which, when trading, is what matters most).
For those that want to buy, they can simply wait for either a) support in the range to be hit before buying or b) wait for a break of resistance to prove that the up-trend may come in, and then get long after a ‘higher-low.’ And for those that want to sell, they can either a) sell while at resistance or b) wait for a break of support to prove that the down-trend may have staying power, and then look to get short on a ‘lower-high.’
Right now, we have price action at resistance and this could open up the door for short-side, trend-continuation entries. If we take a look at the longer-term chart, we’ll notice that this recent box is catching resistance off of a significant long-term level at 1.4371. This is the 76.4% Fibonacci retracement of the secondary move in GBP/USD, taking the Financial Collapse low up to the 2014 high. This level had provided support while price action was on its way lower, and has now given three consecutive days of resistance.
Created with Marketscope/Trading Station II; prepared by James Stanley
Traders could sell off of this level of resistance with stops above 1.4450 (aggressive) or 1.4510 (more conservative), with targets set towards 1.4150 (prior price action swing low), 1.4075 (prior low), and then 1.4000 (major psychological level).
Should 1.4000 be traded through, we’re in a veritable no-man’s land as price action has been very fleeting in this vicinity since 2002; but that could open the door for potential targets as deep as 1.3500, which was the low in 2009.
— 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
To be added to Christopher’s e-mail distribution list, please fill out this form
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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