Analys från DailyFX
GBP/USD Technical Analysis: Getting Long at 1.5500
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Talking Points:
- GBP/USD Technical Strategy: Long position triggered
- Continued bullish price action opens the door for up-trend continuation
- Confluent support at the 1.5500 zone could offer an attractive area for risk management/ stop placement.
In our previous piece on Friday, we noted the budding new up-trend in the Cable, driven by rate expectations on the heels of the strongest wage growth in the UK in over six years along with commentary from multiple Bank of England members noting how higher rates may be here ‘sooner rather than later.’ Since then, considerable USD strength has found its way back into the currency market, but GBP/USD is continuing to hold support in the 1.5500 zone mentioned last week: This can open the door for long positions with an attractive risk-reward ratio.
The bullish price action in GBP/USD began on September 7th, and has since continued to put in ‘higher highs,’ and ‘higher lows.’ Ahead of FOMC, resistance had developed just under the 1.5500 handle, with 4 consecutive top-side daily wicks showing from 1.5425-1.5475. As the Fed backed off of the September rate hike, the Sterling throttled higher as this is one of the few currencies with which we can actually look for higher rates in the not-too-distant future. This is one of the reasons why I had considered Long Sterling as the Most Attractive Way to Trade FOMC.
After ratcheting even higher in a continuation move that topped out on Friday morning, GBP/USD ran into the underside of a projected trend-line, catching near-term resistance off of old, projected support (shown in the below chart with the purple line). This created a retracement that lasted into this morning, and support is now showing in the zone of 1.5500. This area is near the 50% Fibonacci retracement of the most recent major move (taking the May low to the June high), as well as being a ‘major psychological level,’ and a price that has offered multiple iterations of support and resistance in GBP/USD in the recent past.
Long positions can offer an attractive risk-reward ratio with the current technical setup. Stops can be placed at 1.5407 (just below the 61.8% retracement of the most recent major move – shown on the below chart in gray-dashed lines), to take on approximately 100 pips of risk. Targets can be scaled out at 1.5650 (last week’s high), 1.5730 (38.2% retracement of the most recent major move), and then 1.5800 (psychological level and the 2.5 month high).
Written by James Stanley of DailyFX; you can join his distribution list with this link, and you can converse with him over Twitter @JStanleyFX.
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.
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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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