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I’m going to begin the day today on the Greater British Pound versus the US Dollar [GBPUSD]. Starting, first off, all the way out here on the Weekly Chart; get a longer-term perspective for this currency pair. The purple-shaded area, all the way up at the top of the chart, and we’re looking all the way up here in between the 1.6240-level and likely all the way up towards the 1.6300-level. If you follow that purple-shaded area backwards in time, I’ve highlighted multiple areas where the market has found either resistance or support along this timeframe.
Now, I didn’t highlight each and every candle, but the areas where you’ll find those resistance or support. First off, going here into December of 2012, you can see some resistance here. Then we go all the way back here into September of 2012; some resistance into this purple-shaded area. Then you go back here into April. So, the last three times, of course, you can see easily the market finding resistance into that same purple-shaded area underneath the 1.6300-level and dramatically reversing for this currency pair.
You go even further back and we can see some resistance a little bit shy of that purple zone, into the green-shaded area here, back into October 2011. Then we go further back and we could see some time here finding some support on top here, into August of 2011. Some resistance, again, into February of 2011. Some resistance, again, into October of 2010. And then, again, you go all the way back here to the left of the chart; into 2009, we can see some recognition of support again into that purple-shaded area.
What I’m trying to get across here is that zone between the mid-1.6200s and the 1.6300-level historically has been a key resistance and support level where the market has made a decision either to find support on top of it or, most importantly, for now, finding resistance underneath it. If you go over here to current timeframe and the right-hand side of the chart, you could see that most recently that’s exactly what’s been happening. This currency pair has been finding resistance underneath that purple-shaded area.
Also, have a couple of trend lines here that I want to point out. First off, the more important one for finding resistance is this bearish red trend line you can see, connecting the last two highs that we see here – the last two major highs that stick up here. Connecting those last two highs with this bearish trend line, guess where we’re coming into contact again with the current market. So, again, this zone. We have the bearish red trend line connecting the last two highs. We have the purple-shaded area. All of that informing us that there’s likely resistance here just underneath the 1.6300-level. And then all of that coming from Weekly Chart.
Let’s take that down to the Daily Chart; get a little bit of a closer viewpoint of this currency pair. And of course, there’s that same purple-shaded area. There’s that same red trend line coming into play. Both of them helping us identify resistance. That red trend line, and the purple-shaded area just about of the current market. And we could see that the market has held there.
You might even begin to look at this as creating a double top, where we challenged here just several days ago, here into the mid-1.6200s – 1.6250 or so. Came back down into the 1.5900, and then right back up into that same price level of 1.6250 and finding resistance. You might consider that to be a double top. Double top is an implication that the buyers are having a difficult time pushing the market through that price level and possibility of reversal here. So, definitely something that we’ll want to take note of. If we start to see lower highs and lower lows and a change of the trend pattern, which currently has been bullish, if we start to see a change of that trend pattern, we could look for a longer-term reversal for this pair; if we start to see those changes in the shorter-term compression.
So let’s take this even further down to the 4-Hour Chart. And now, here on the 4-Hour Chart, we can, again, see that purple-shaded area. We can see the green zone and the red trend line, where the market has been finding resistance recently. And if it breaks down through the 1.6120/1.6230-level – the bottom of that green zone – I expect we’re at least likely looking for a push down to the blue-shaded area and into the bullish trend line that we see here at the bottom of the chart. That would be our next targeted level.
So, let’s go ahead and begin devising a plan here for this currency pair. If it breaks underneath the green-shaded area – 1.6120/1.61250, in that area -, opening and closing underneath that green-shaded area, targeting back to the blue-shaded area, so that gives us an opportunity to sell this currency pair on a move back underneath the supports – these two supports. 1.6125 or so, we look for it to go back down into the low-1.6000s. That gives us an opportunity to sell this currency pair.
Now, of course, the other side of this is that if it doesn’t do that, we look for a challenge back to the purple zone. And a break above the purple zone, that key resistance, we’ll look for a continuation higher. I also want to zoom it in here on the 4-Hour Chart, because this is beginning to give me a little bit of a different picture of this pair also. If you look for a head and shoulders pattern as a clue to reversal, we can see on the left-hand side, and let’s just go ahead and highlight some of these.
I’m going to bring in a little circle here so we can highlight this. Here is our left shoulder of the head and shoulders pattern. Then of course we could have the high point within that pattern. If you’re familiar with the head and shoulders pattern, we would have three peaks. We have a left-hand peak, a center peak, and we’re now looking for the right-hand peak. We’re looking for the right-hand shoulder of the head and shoulders pattern. I’ll just bring this in and we’re looking potentially here at that right-hand shoulder being developed. So, as we, again, see the challenge of the key resistance in that purple-shaded area, we’re watching for clues or indicators that imply a potential reversal.
We already looked at a potential double top on the Daily Chart. Now we’re seeing, on the 4-Hour Chart, the head and shoulders pattern potentially developing. Again, to confirm that pattern, I need to see the break of the neckline, which would be these last two lows – these last two support lows. If we see a break of the 1.6125-level, confirms that; we look for it to go back down. Now, for the risk-takers out there that want to go ahead and jump into this without waiting for the break of the neckline, you could simply sell it up here at the top of the green-shaded area.
Obviously we have found resistance into that right-hand shoulder, and the market is having a very difficult time breaking back above the 1.6185-level. So, if that’s the case, you could sell it here. Stop above the resistance high. If it breaks above the resistance high, you don’t want to stay in a sell any longer anyways, likely challenging the purple zone or higher again. So, for the risk-takers today, selling here into the 1.6180s is a possibility. You target back down to 1.6125 – the bottom of the green zone. A break of that, we’re going all the way back down to the blue-shaded area.
Now, for the people that are thinking about buying this currency pair in the direction of the trend, I particularly would like to see a dip much lower. I’d like to see it go down before I even consider buying it. Selling or buying this close to that purple-shaded area – that critical historical resistance up there – just doesn’t seem like something that’s logical for me to do. Now, there’s plenty of room between the 1.6185-level and the mid-1.6200s, so if it breaks, opens and closes above the 1.6185-level, that could give you your opportunity that you’re looking for.
So, here is your opportunity. An open and close above 1.6185, look for it to continue to pressure higher towards the mid-1.6200s. That becomes your target. Let me take these circles off because they’re quite distracting, and so we’ll take those off, but don’t forget about them. There’s that head and shoulders pattern – potential reversal. My expectation today: I’m not looking to buy this currency pair right now. If I was to buy it, it’d probably be for a dip all the way back down there towards the blue-shaded area and the bullish trend line. So, right now, my focus for the GBPUSD today is for selling, either here at the top of the head and shoulders pattern, a break of the neckline – bottom of the green zone – looking for this to go back down towards the blue-shaded area for the GBPUSD today.
