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I’m going to begin the day today on the Greater British Pound versus the US Dollar [GBPUSD]. I’m starting here on the Weekly Chart. Over the past several weeks in the Trade Room, we’ve been studying this blue box that you see here right in the middle of the chart. You follow it back in time. Again, this is the Weekly Chart, so we’re looking further back in time. We’re back here into 2013. We could see this timeframe. It’s about a couple of months that bounced around between the top of the blue box and the bottom. The blue and green-shaded areas found resistance and support for a couple of months.
Eventually we see where the circle is it broke out to the top side of the box and continued the uptrend pattern. Then over here on the left-hand side of the chart, you see a very similar timeframe. A little bit longer period of time. A little bit of a different price action, but primarily resistance into the green zone. Support into the blue zone. Eventually breaking to the bottom side and seeing where the blue circle is. A candle body open and close underneath the blue box and a continuation lower. So, as long as it’s inside the box, as we could see back here and here, and even if we go further back in time, there is resistance expected into the green-shaded area at the top of the blue box and support at the blue-shaded area at the bottom of the blue box.
So, all of that is really how we’re going to devise a plan to trade the GBPUSD this week, because as long as it holds within there, we expect it to continue the range. Only if it opens and closes and breaks out like it did where those two blue circles are on the left-hand side of the chart do we expect a continuation of the trend, either higher or lower here for the GBPUSD.
Let’s go ahead and take that information now down to the Daily Chart. And as we get down here to the Daily Chart, two things to note here on this chart. Of course we already know the blue box, the green-shaded area, the blue-shaded area, but a couple of things to note here on the Daily Chart is the blue trend line coming down from the top and connects with the highest high that you see here and connects right here where this little spike high that you see. Actually that day right there where the red candle is and the spike on top of it, where it touches the blue trend line happens to be the day of the Scotland referendum vote and that’s where it spiked up there into the 1.6500s, and then we saw over the past several months or weeks another reversal here for this currency pair.
But very interesting there. That’s the blue trend line coming down from the top, and we can see we’re coming very close now to challenge underneath that blue trend line. One other thing here to point out is Fibonacci from the highest high, down to the lowest low. Highest high all the way up here into the 1.7100s, and then the low down here just underneath the 1.5900-level. Doing Fibonacci from high to low, that puts the .236 Fibonacci retracement level at 1.6185. There’s right there at the green-shaded area, which we already know from the Weekly Chart is resistance. That puts it right there at the blue trend line, which we can see here on the Daily Chart is likely diagonal resistance that we can view here with that trend line.
So, let’s go ahead and put an arrow there. We know that this will be resistance, close to 1.6180, 1.6185, right there at the bottom of the green zone. So, now that we know that we could devise a plan. As long as it’s holding within the blue box, we know there’s likely resistance there. So, as it approaches, as it gets closer to 1.6180, 1.6185, maybe even towards 1.6200, we begin looking for opportunity to sell for reversal to go back down in the direction of the longer-term trend, because if we define the trend here, yes, over the past two, three, four days we have seen some bullish price action as it bounced off of 1.5900, but the overall trend behavior here for this currency pair for the past several months has been bearish.
We’re going all the way back to July. It’s been clearly a downtrend, a bear trend, and that really hasn’t changed because if we define the trend, we know that a downtrend has lower highs and lower lows, and we haven’t seen a change of that pattern yet. Yes, some bullish movement, but not a change of the trend pattern. That would of course take – at least at this point I would expect it has to get back above the green-shaded area if we’re going to look for a trend pattern change, which it has not done yet.
So, within or under the green zone, the blue trend line, the Fibonacci, I’m looking for resistance to go back down. If it breaks above it, that’s the risk. We could evaluate risk to reward here just by using that same green-shaded area. As long as it holds within it or below it, that is the resistance. We’re looking to sell. The risk is that it breaks above it to go higher. So, 1.6260 or so, just above the green-shaded area would be our risk for selling the GBPUSD. The potential reward of course would be back down to the blue zone, which we looked at from the Weekly Chart, back down to the bottom of the blue box, the blue rectangle, and in towards the 1.6000-level.
So, we know our risk. We know our potential reward. Even if you wanted to take that purple-shaded area as your potential reward target, I think that still would be justified depending on how high within the green-shaded area you get. Another interesting aspect here on the GBPUSD chart is the Forex Black Book indicator. We talk about that quite often in the Trade Room. That’s the green and red bar at the very bottom of the chart. Last week we saw it turn green, didn’t we? We saw it turn green because we saw that bullish behavior and it turned green, but then all of a sudden this week it turns back to red again, so that’s very interesting. And we talked a little bit about that, the reasons behind why it’s green or why it’s red last week in the Trade Room.
So, now that it’s red, as it approaches resistance, we’ll be looking for new sell opportunities. Let’s go ahead and take it down to the 4-Hour Chart. And as we get down here, one other thing that I want to point out here right into the green-shaded area, where we’ve already identified this as resistance, is the fact that last Friday we saw our bank flow levels right here at the green-shaded area. Last Friday they popped up and we see them. I’ll just list them out here for you. 1.6166, 1.6183, and at 1.6204. So, there are Friday’s, not today’s, but Friday’s bank flow levels right there into that same green-shaded area.
So, again, it’s confirming resistance. We know that there’s resistance from the Weekly, the Daily, now the 4-Hour Chart with the bank flow levels from last Friday. If they come out again today and they’re right here into the green zone, again, it gives us a higher confidence. The risk of course is that it breaks above the bank flow levels, above the trend line, above the .236 fib, above the green-shaded area, the blue box. There’s a lot of reasons or evidence for resistance here today. So, what I’ll be expecting to do today is looking for opportunities to sell as close as possible to 1.6200, inside that green zone. Stop loss above the green zone. That way if it breaks out and continues to go up, I minimize the impact of that loss.
Buyers right now. I would suspect if you’re a buyer, you’re buying from the blue zone. Maybe intraday buyers are looking for a little bit of an opportunity on top of 1.6100 to target back here into the green zone. So, if you’re buying, you’re probably buying down here right at 1.6100. You’re a little bit above that now, so probably not in it right now, but if it makes a dip back to 1.6100, you buy towards the green zone. The risk there of course is that it breaks underneath the purple-shaded area again. So, if you’re going to buy, you buy the purple zone. Risk underneath it. Target the green zone because if it breaks the purple zone, we’re back to the blue zone at the bottom. Sellers, you’re selling the green-shaded area today for the GBPUSD.