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I’m going to get started today on the Greater British Pound versus the US Dollar [GBPUSD]. Starting here on the Daily Chart, of course in the Trade Room we’ve been studying several different indicators that are pointing to trend direction here on this currency pair. Of course on the left-hand side of the chart, we see four different trend lines that represent the previous uptrend, the longer, blue uptrend line, the black trend line. There’s a shorter, green one. It’s kind of hard to see right here in the middle of the chart, but there’s a green trend line coming up here from the middle, and there’s a shorter red trend line.
What’s important about all four of those trend lines, no matter the perspective or the vantage point that you’re looking at, is that the market is currently underneath all four of those trend lines. That’s the first indicator that we’ve been looking at, pointing to the direction that we should be trading. Then on top of that, we’ve added a 100-day or 100-period moving average here on the Daily Chart, and that’s the green, wavy line that you see coming up along the trend. You see it coming up as the trend was going, and then recently we’ve seen a break underneath that 100-day moving average.
So, two indicators pointing to bearish trend bias right now, and that’s the break underneath all the bull trend lines and the break underneath the 100-day moving average. The third indicator that we’re looking at here is the downward trend line. The blue trend line coming down from the top, recognizing the trend that’s been in place basically since mid-July. July 15 we capped out at the highest high on the chart, and we’ve been falling ever since, so that’s our third indicator of trend direction, at least the current trend direction.
And then fourth, we’ve been looking at the Forex Black Book trend bar down here at the bottom, pointing red or bearish bias here for this currency pair. So, four different indicators on the chart, pointing to a bearish bias. So, if you’ve been concentrating on that on the past week or so, then it’s been a very profitable scenario, as yesterday we saw a healthy drop out of this pair from the 1.6800-level, down into the 1.6600s.
Now, if that’s going to be the trend direction, we also want to look for new opportunities to trade in that direction because that’s the direction the market is going in and that’s going to be the safest direction to focus in on. Let’s go ahead and zoom in a little bit here on the Daily Chart. And as we’re looking at this, we looked at this in the Trade Room yesterday. I want to point out how the historical pattern of the trend has been working. Now, I often describe a trend as having lower highs and lower lows, but what exactly does that mean. And if we take a little circle shape, and I’m just going to draw it out like this and put it up here, you could see we created a high. In other words, we saw a little bit of a pullback.
It was going down. We saw a two-bar pullback. The third bar. A third candlestick. We had that drop, as we saw yesterday, go back down. Another example of that within the same trend would be just above that, and I’m going to draw out another little circle here like this and I’m going to put it right here. And you could see a very similar action, where you saw a dip into the pink zone, a two-candlestick pullback, two-day pullback, a resistance into the green-shaded area on the third day, and then a return of the downtrend.
So, if we take those as part of the pattern of the trend, and that’s what we do as technical traders; is we look at patterns within the trend. We take that as part of the pattern, we can also make some generalized assumption that that may be what we’re looking for now. So, we’re going to take another circle and put it right here, and say if we see a pullback to the yellow-shaded area, the market has already given us a hint or a clue to what we might expect. So, for the day today and maybe over the next couple of days because it took a few days for that to take place over here, we’re looking for the market to return into resistance, likely the yellow-shaded area, and then we look for a fall back down in the direction of the trend.
The good news is we have the trend line coming down, the blue trend line coming down. That would help us identify resistance. We have historical support on the left-hand side of that yellow-shaded area here in the middle of the chart. Back in May and June, we see support in the yellow zone where all the trend lines connect. We have support over here on the left and even on the far right-hand side of the chart some resistance into that yellow zone. So, we have resistance, support, and now that will offer some resistance for us.
One other thing that we can do, and let’s go ahead and take Fibonacci from the highest high on the chart, down to the current low. We can do that right there. It does tell us that there could be a little bit of a further pullback. We do see the .236 at 1.6783, but that’s one vantage point of the trend, because if I take it down to smaller compressions, I definitely could take that same fib and maybe put it at this high right here where that first circle here, or this right here where yesterday’s candle capped out. You know, it depends on your vantage point how you want to look at that Fibonacci, and we’ll look at that some more during the Trade Room later on today.
So, what I’m saying here with this currency pair. The closer you are to the purple-shaded area, which is our current support, would be discouraging to sell it because you’re running into a barrier of support. If you’re going to sell this in the direction of the trend, it’s my expectation that we need a pullback. We need it to go back to the yellow zone before it becomes a lower risk, higher potential reward opportunity to sell this.
Now, does that mean I would buy it into the purple zone? No, not necessarily. It’s possible, but remember what the trend bias is, the direction that we’ve just been focusing in on is a sell bias. So, I’m not really concentrating on the buys. I don’t want to really look for opportunities at this point, until we start to see changes in the trend pattern, which right now the trend pattern is showing us a bearish bias.
Let’s take all that information down to the 4-Hour Chart, and I’m going to take the circles off because they’re really big here on the 4-Hour Chart. They just adjust that way with MT4. Let’s see if I can get this one selected. There we go. And by doing that, we could see where the yellow-shaded area is. Of course we’ve already discussed that. Let’s zoom it out a little bit like this. Take a look at yesterday’s bank flow levels. These are yesterday’s levels, but take a look at where they are. They sit right here at 1.6766, 1.6779, and 1.6793.
Now, I might expect that we could either see those bank flow levels stay fairly steady today, right about where they were yesterday or maybe a little bit lower, just sitting on top of this yellow-shaded area. Again, that gives us some confidence that that’s the area that we’ll look for our resistance for the day today. Zoom it in a little bit. You could see this little down run from yesterday. Again, like I said, you could take Fibonacci, and I’ll go ahead and do it here, of just this run from yesterday. From high to low of yesterday puts the .236 at the bottom of the yellow-shaded area, the .382 at the top of the yellow-shaded area, again, confirming that right there between probably around 1.6700 and 1.6735 will likely be our intraday resistance for the day today, and if you’re looking to sell it, that becomes the spot.
If it breaks above this yellow-shaded area today, then I will definitely expect it to push all the way back to the pink-shaded area. That becomes our next resistance and along with the bearish trend line. So, if you’re looking for a sell, yellow zone with your risk just above it, or pink zone with your risk just above it, looking for an opportunity in the direction of the trend, no change of the trend pattern, so not, at this point, looking for any buy scenarios for the GBPUSD today.
