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I’m going to get started today on the Greater British Pound versus the US Dollar [GBPUSD]. I’m going to start all the way out on the Monthly Chart. We’ve been looking at this time compression for the GBPUSD over the past several days in the Trade Room because I think it’s important to take a look at this longer-term timeframe because of the history of the price levels that we’re in right now.
If you go back to the left-hand side of the chart, you see the highlighted yellow-shaded area in the middle of the chart. You go back here into 2005, 2006, you see a great deal of support. And again, keep in mind this is the Monthly Chart, so several months found support into this yellow-shaded area around the same price level that the current market is. And then you go back even further. We’re going back into the 1990s, 1998, going back into 1997, going back into 1996 even on the far left-hand side. So, through the ‘90s, some time here into the mid-2000s, and now, once again, we can see the market coming into this critical historical price zone.
Also taking Fibonacci from the highest high to the lowest low that you see here on the Chart, this long downtrend that we could see. Fibonacci of that range puts the 50% retracement level right at 1.7331, so that’s right at the top end of that yellow-shaded area. So, that’s important for us to take a look at, but let’s begin whittling it down and see how it’s going to work within our intraday trading strategies.
You take it down to the Weekly Chart. You can, again, see how the market is right there in the middle of that same yellow-shaded area, right now hovering into the low to mid-1.7100s. Again, doesn’t really become an intraday trading strategy, but just important stuff to know as we go through our analysis. Not only that. We can see that over the past several weeks we have been in an uptrend. Well, actually several months. We’re going back a year now that this currency pair has been in an uptrend.
What’s critically important about this is that we’re at the very peak high of the uptrend. I don’t think we could get higher within the uptrend and we’re testing this historical resistance. So, clearly, if you’re looking to buy this, this may not be the most opportune time to buy it. Even if it’s going to continue in the uptrend, I still don’t think you want to buy it exactly at the top of the trend because there’s often potential for a little bit of a drawback, a little profit taking or pullback, so buying at the top of the trend. Remember the old saying. Buy low, sell high. So, I don’t think you really want to consider a buy right now unless it pulls back into some support here for the GBPUSD.
Zooming it into the Daily Chart, we could see the market has been challenging there into that same price level right around the mid-1.7100s for three days now, even today. Of course we do have a lot of data coming up here shortly here for the USD, so definitely something to take some note of and use some caution. I still think and I’ve been saying this for several days now that if you’re going to buy this in the direction of the trend, that’s great, but I would expect you’d want to see a dip into support first to give you a lower risk, higher reward opportunity to buy it as you look for it to continue in the direction of the trend.
Otherwise, the other opportunity is looking for resistance, which we see, and clues to reversal. Indications of reversal, which I don’t think we have clearly setup yet, but definitely something to watch for at the very top of the trend. Now let’s take all that daily information and let’s take it down to the 4-Hour Chart, and yesterday we outlined this area. Right in the middle of the yellow-shaded area, there was a zone between 1.7141 and 1.7163 that the market had been holding in. Keep in mind this is the 4-Hour Chart, so this is a couple of days’ worth of candles just hovering inside this 20-pip zone between the two black lines in the middle of the yellow-shaded area.
Yesterday I said there was really one of two possibilities within this yellow-shaded area and within that zone. We either look for the breakout above it to continue the uptrend, or a breakout below it to continue a reversal of the trend. And right now we can see that the market is challenging and attempting to breakout underneath that yellow-shaded area. The question is: is this going to be a real deal breakout or is it simply a false breakout? And we really can’t know until the current candle has closed because simply this current candle could turn into a big blue candle and it nullifies any breakout.
We do have non-foreign payrolls today. There’s actually a bunch of news coming out at 8:30 Eastern time, about 35 minutes from the recording of this video, so it could dramatically change the picture that we’re looking at right now. I still think that we’re looking for a breakout of this area of congestion. The trend is up, so definitely something to consider there. If you’re buying it, you want to see a breakout above that area of congestion or potentially a dip down into support, which I think would be all the way back down there into the blue-shaded area.
So, for the buyers today, let’s just talk about that for a second. You’re looking for a breakout above and I’ll call it 1.7165. If it can get above 1.7165, we’re easily pushing into the mid to upper-1.7200s. You could see the top of the yellow-shaded area is right at the top of the chart. We know where this yellow zone comes from, from the Monthly Chart, so a clear break above 1.7165, I think we’re easily pushing back towards the mid to upper-1.7200s.
The other side of it. If it does take a dive today, I would suspect that there will be some support into the mid-1.7000s. 1.7040 to 1.7055 is the blue-shaded area that you see down there. So, if you’re buying, you’re buying on a break above the current area of congestion. 1.7163 or a dip to the blue-shaded area becomes your two opportunities to buy in the direction, by the way, of the current trend.
Now, for those folks that are looking for reversal, you’re probably starting to see your first clues of that right now. Your risk is fairly tight. If you’re thinking about selling it right now, your stops go just above the, probably, 1.7175, 1.7180-level. If you’re looking to place a sell and have a stop, fairly tight risk on a stop and you’re looking to target that same blue-shaded area down there at the bottom of the chart.
Forex Black Book is green. I don’t think we have another chance to see a green arrow today, until or unless it dips all the way back down here to the blue-shaded area. One last thing here. Let’s take a trend line right here and put it right about there. That looks good. This red trend line showing the current trend. That’s nothing new. Higher highs and higher lows. If it breaks down through that trend line and starts to create lower highs and lower lows, specifically a break of the blue-shaded area also, we’re likely looking for a reversal of this trend, at least a short-term reversal, and looking for it to go back down.
You could throw some Fibonacci in here also, but I don’t think it’s going to change any of that. Well, let’s just go ahead and do it. Let’s take one fib from the low here. Let’s take it right down here at the low that we see here on the the 4-Hour Chart to the current resistance high. And as I said, I don’t think it’s going to change it a lot because the .236 fib sits right down here at 1.7062. That’s right at the top of that blue-shaded area. So, clearly we’re at resistance. The support is the blue zone. The .236 fib. The historical resistance. And if it breaks out above the current resistance high, we’re back into the mid to upper-1.7200s for the GBPUSD today.
