GBPUSD retrace trade

[phillo]

Blue zone should offer some support in my opinion

[Mercury]

agree @elle that is my assessment also.  Should see some positive movement this morning, maybe led by EUR, which is data release heavy this morning.

[Mercury]

Shoulda known better!  Markets make fools of everyone...  This break down on GBP brings up a test of the Fib 88%.  EUR is holding up better so far and AUD looks to have already turned, unless...  Catching a retrace rally is hard work, which is why it is always better to wait for confirmation.  I thought I had it on EUR, maybe still do but this morning will tell the tale I think.  Given GBP volatility I am waiting to see a confirmed turn at Fib 88% and breakout of upper resistance before trading but EUR is more stable.

[Mercury]

OK now with some charts.  Looking back I didn't have PMD on the 4 hourly chart at the Fib 78% and on the 1 hour it was not strong.  I now have a Triangle formation with good PMD building on 4 hourly and Weekly and a last ditch support zone around the Fib 88% (which was a level reached by EURUSD recently).  Failure here brings up the spectre of a double bottom, hard to trade as it looks like a break lower is on the cards.  A Long trade on any bounce rally off this zone would need close stops and GBP is spiky.  Safer bet is a break of the upper Triangle line.

Ironically, given the surge down, my set up is stronger than before.  I guess that is all about buy weakness, sell strength...

[Mercury]

Now we have had a firm breakout of the 4 hour chart (and Daily) Triangle formation at a credible Wave B (sigh of relief!) I am looking to target my first swing trade.  I expect GBP in particular to swing back down fairly hard and probably to retest the Triangle breakout zone or even lower perhaps.  NFP may come into play to halt and turn the retrace into a strong wave 3 rally.  I do not expect EUR to retrace as hard but let's wait and see.  I think AUD will only retrace at most to the Daily channel line, this one is already in a wave 3 of Wave A.

I see 2 wave 1 top out candidates very close to each other (red level zones on chart below).  I like the second because a hit on the underside of an opposite trend Fib is always interesting but the supply/demand zones on the first one are also interesting.

Trading strategy:

1. Hold pre Triangle breakout Longs but sell post Longs at the first resistance zone (next one isn't that much further after all
2. Do not Short, the risk reward is not there
3. Wait for a good retrace to a strong turn zone, watching out for NFP tomorrow and then go Long again, leveraging profits from firs swing

Thoughts?

 

[Mercury]

4 hour chart might be a bit easier to read and is suggesting the 13,000 mark is about right for a top out level.  The retest of the Triangle breakout zone would also be at Fib 62% IF 13,000 is is top top out.  let's see.

[Mercury]

So the market did indeed run up to pre identified resistance and bounced back down, not as hard as the EURO though.  Does this mean there is movement on Brexit?  Who care?  Technical analysis and price action told the tale, all I needed to do was be ready to take advantage or my road map if proved reliable:

• Good resistance level on the 1 hour chart
• NMD on the turning point
• Nice simple 1-5 wave patter completed on the turn
• Low risk entry with stops just above the Resistance zone
• Additionally the turn was off the underside of the Fib 62% level from the Oct 12 (wave B) high (not drawn on chart)

I exited by Long from the Triangle breakout and entered a Short at the turning point, now stop protected just above the turn (very small loss if it reverses - retrace moves can be tricky).  I am expecting this market to retest suitable support levels, maybe even the original Triangle breakout level before a strong rally away.  I am now looking to identify the next turn up to exit my Shorts and resume my Longs campaign.  If the market hammers on through to resume the Bearish trend I have some good shorts, stop protected at break-even.

[Mercury]

GBPUSD is at an interesting juncture.  Just hitting resistance now and bouncing back down.  This is also within a developing Triangle that is consistent with a wave ending formation.  A break up and through resistance suggests a rally on to the 13,300-400 area before some possible consolidation.  A break down from here and through the lower Triangle line brings up the retrace and possible retest of the 1 Nov breakout rally (around about Fib 62% - 12,800 area).

With significant NMD at the current resistance area I am favouring the latter scenario for now.  I have already cashed my longs and will be waiting to get Long again when the price action indicated it.

[Mercury]

Something interesting could be occurring on GBPUSD.  While EURUSD has been oscillating back and forth since the initial breakout rally but now looks set to push up into a longer rally phase (not withstanding any retrace to retest the breakout zone - eminently possible), GBP has been more or less rallying straight up.  This move has been too strong with too shallow a retrace to conform to EW 1-2 in my opinion, unless the GBP rally is going to hammer up test the 14,500 area (possible of course but not what is the probability?  Low for me but would be interested to hear if others disagree).  There is also a technical gap unfilled on the weekly chart between last weeks close and this weeks open (if you exclude the tails - i.e. no close - which some do).

This brings up the possible scenario that in EWT is called a complex retrace.  The EW systems states that in any long term rally there will be 2 major retraces (the 1-2 and the 3-4) and that 1 of them will be a complex one.

A normal retrace consists of a simple A-B-C formation where the termination of wave C is higher (in a retrace rally) than that of wave A and the termination of wave B does not exceed the start of wave A.  Normaly the form of wave A and wave C is a fairly straight forward 1-5.

The the complex version there are several alternative forms but the most normal one is that waves A & B have a-b-c internals rather than 1-5s and wave C can be either 1-5 or a-b-c.  Confused?  Let's look at the charts.

On GBPUSD the current price action since 15 Aug has rallied to Green A with an ABC internal pattern (brown labels).  There there was a counter bearish move to  Green B, also in an ABC.  Wave B did not break past Wave 1 (Blue) and the current rally began.  BUT, unlike the EURO, which has had a significant retrace back down since the initial rally, GBP has not.  So a plausible scenario is for GBP wave C to take an ABC route to the end of the overall rally phase.

Trading strategy:

• Hold any Longs taken around the 4 hour chart Triangle breakout with stops below a retest of that level.  Consider cashing any higher up longs if the market shows a ST trend change
• Consider a small tactical Short on a breakout of the 1 hour Triangle, stops just above previous highs
• Wait for the retrace bearish move to conclude and assess likely turning points for a final strong rally phase.  Most likely at present is a retest of the original breakout zone but wave Bs are fickle.

 

 

[Mercury]

With the Euro bouncing off the previous breakout support area, albeit not yet galloping away, what of GBP?  Looks to me like it remains within an ascending Triangle (4 hourly chart) that is likely to run up for another leg to the over head resistance.  At that point it cold close the first wave up of the rally phase and drop back, possible quite hard, to set up the final rally push.  This is aligned to the AUDUSD set up of a more A-B-C move.  EURUSD look different to me because it has been a bit sluggish and has not rallied in the same way that GBP and AUD has so I favour a stronger phase for EUR while the others go into a stall.  If you look at the Triad pairs you will see that the Euro has been week (naturally) but there are signs of Euro support and turn, which would correlate with my assessment above.

Trading strategy:

1. I'm focusing on EURUSD longs as a better set up for a rally
2. Possible ST short on GBP and AUD if one had a mind to (I would favour GBP)
3. Watch any retrace on either GBP or AUD to get long as a good support level turning point
4. Watch the Triads for clues (not trading these, except for EURGBP Short LT but now just now)

Thoughts on any of these pairs?  Is anyone trading them just now?

[Mercury]

Update.  My lower Triangle line was misrepresented on the 1 hour (on PRT the lines from a longer time-frame chart often do not map well to a shorter one).  The Triangle was indeed broken through and retested overnight and now the prevailing direction appears to be be down.  I anticipate this to be a retrace move (A-B-C) that will turn back up into a final rally to complete the overall big picture rally.  As discussed previously the choppy nature of the GBP move so far is consistent with an EW complex retrace but the final wave up (a wave C) should be fast and long, if this set up is correct.  (Check also what is going on in the Triad market EURGBP).

Trading strategy:

• The Short is insufficient in pointage for me to take it so I will wait for the eventual Long (or something else is the market breaks down - but for now that is something I will wait on).  I think the move down may prove a bit choppy with at least one significant rally phase before the turning points.
• I am focusing my attention on EURUSD Longs at present.

[Mercury]

This pair did indeed begin a bearish move with a breakout of the ascending Triangle.  At present this still looks to me like it is going to rally further in due course but for now I have too many scenarios for how this current bearish move will play out so I cashed my Short early and will await events.  In practical terms I am more inclined to trade EUR as it is so low that stops can be very close.  It is possible we will see a short term rally followed by another drop before a proper turn back rally takes hold.  Watching for correlations with AUDUSD might prove useful as that market is showing an ABC type retrace rally, which ought to descend further before the final rally phase.  EURUSD could do something quite different.

[Mercury]

GBPUSD could be breaking out of a down channel after a retest of the original breakout point (as projected by my road map).  AUDUSD looks to have already done so over night and possibly EURUSD is moving to join.  Can't rule out another leg down just yet so stops below the 12,800 mark if you want to give it some room.

[Mercury]

The market has just broken through ST resistance after s small 1-2 retrace off a potential WaveB turn.  If this stacks then a strong rally phase is underway.  My target of circa 13,800 remains unchanged for this big picture counter trend rally.  I am long from the W2 retrace zone and the resistance breakout.

 

[Mercury]

Wondering what could possible act as a catalyst for a GBP rally?  Today there is a strong rumour that the UK PM will pull the Brexit deal vote, which she knows she will lose.  Simultaneously there is an ECJ ruling that the UK can reverse the Brexit decision.  Coincidence?  I doubt it.   Smells much more like the so-called elites cooking up a recipe for contravening the will of the UK people, which if true will have noting whatsoever to do with democracy but that's a topic for another time.  I wonder what the markets would make of the rumour that such a reversal might be in the offing and that a delay to Brexit is on the cards...

[phillo]

Brexit uncertainty & now maybe the "48 letters"  - this has the potential to fall a lot further

[Mercury]

Or it could rally off LT support zone despite news (or maybe the thought of a new PM is sufficient impetus for a relief rally?).  All I am looking for is a counter trend relief rally to set up a much large collapse (or rather a USD Bull vs everything!).

[Mercury]

I have been tracking GBPUSD along with EURUSD and the EURGBP Triad for some time now and maybe, just maybe, we have seen the bottom of the current Bearish wave.  If I am right about EURGBP (see Triad post) then GBP could well rally faster and further than EUR.  If we see a breakout rally then I am targeting the 14,000 level (current Fib 76/78%) as the counter trend rally wave termination area, but miles to go on that one.

For now the Technical analysis is showing me Pos Mom Div on Weekly and Daily chart with a nice bounce off the lower Daily Triangle line at a point of significant LT support.  The bounce was strong after the semi flash crash (I say semi because it is clearly dwarfed by the previous one) and could put in a nice pin bar reversal price action on the Weekly (still a day to go on that of course!).  I have a strong 1-5 wave down, although I had that before but the thing about this is each move lower actually strengthens the Technical case for the retrace rally while key support remains intact.  It is all about trial and error based on price discovery when trying to catch a turn, which is why close stops and constant monitoring for reversals against your positions are crucial.  Alternatively wait for a breakout from the Triangle resistance level but watch out for retests.  I would expect some ST retrace down but may not be significant so, having caught a Long on the first retrace I will be looking to buy the dips once I see the rally take hold.

 

[Tradingview]

great analysis , keep it coming.   Many thanks

[Mercury]

Friday was an interesting day for FX in that the EURUSD went into temporary Bearish mode post US NFP but GBP and AUD resisted this and CAD actually rallied against USD (divergence?).  In the case of GBPUSD it continues to make another attempt to make a break out rally.  We might see a retrace move on the hourly chart before a breakout but equally price could just continue to shoot up.  Given that I think we have already seen this retrace on EURUSD and EURGBP could easily be due a relief rally I suspect we will see a retrace bearish move prior to any medium term breakout rally.

My trading strategy:

1. I am already Long and will hold these position stop protected against a short term bearish move in anticipation of a longer term rally
2. I may add Longs on a retrace turn (maybe at a Fib 50%, as with EURUSD or possibly only the 38%)
3. I may add Longs on a fast breakout of the overhead resistance channel line (Triangle)

[phillo]

vote tomorrow  - GBPUSD  volatility guaranteed I guess - chart here FWIW

[phillo]

update  - the good ol' 150 ema

[phillo]

[trade247]

missing your views @Mercury 

[Mercury]

Ok that was weird @cryptotrader!  I was just about to post this as I got your tag...  I haven't had much to say because there hasn't been much change since Christmas.   Across the patch things are proceeding as expected: USD down; Oil up; Gold/Silver flat; Stocks edging up to a wave A.  As a long term trader rather than a day trader, often good trading is doing nothing, just letting your positions run; managing risk and watching for the next activation zone for exit and fresh entry.

For the record, I am long GBP, EUR, Oil (counter trend) and Gold (long term) and still Short Stocks (from November long term not currently) and Short EURGBP (long term).

Regarding GBPUSD, I am not really interested in lasts nights Westminster pantomime, those MPs are detached from the electorate in a way that we have not see such evidence of for a long long time.  The deal was bad but that was to be expected when dealing with an organisation as Byzantine as the EU.  The PM is in a no win situation: take the deal on offer or come back with no deal, either way she is painted as inept by the opposition.  The panto will continue up to the point the UK leaves with no deal, which will not be the disaster people are making it out to be.

Anyway so much for the back drop, in such situations, when it is impossible to tell how markets will react, I stick firmly to technical analysis.  For me the vote yesterday didn't cause any change in my assessment.  Sure there was a bit of nonsensical intraday volatility but GBP ended up almost exactly where it started.  If fact yesterdays price action took price back down through my Daily chart Triangle channel line and back up above it in a bullish pin bar form.  On the Weekly Chart you can see that the days movements are not special.  So the board is still set fair for the retrace to proceed in my opinion.  For the avoidance of doubt, my road map arrows are indicative as the counter trend rally could trace many different routes but the basic premise of my position is that the market will sketch out a significant retrace rally, in an A-B-C form until the Bear takes hold with a vengeance.  As a swing trader I will seek to take advantage of this but as a long term trader my eye is firmly fixed on identifying when the Bear resumes as this is the bigger, and safer, bet.

[trade247]

4 hours ago, Mercury said:

Regarding GBPUSD, I am not really interested in lasts nights Westminster pantomime, those MPs are detached from the electorate in a way that we have not see such evidence of for a long long time.

You're not wrong on that one! It amazes me that even in these perilous times for our country those on either side of the bench are still the ones squabbling  amongst themselves and setting up plays for future power. Same as post-ref ... leading leavers dropping like flys so they can let someone take the un-imaginable task of leading the UK thru brexit.

 

short term vol played out pretty quick. risk off over the next few days. Like you said - at this point the sensible thing to do is nothing .

[Mercury]

Do nothing in general @cryptotrader since Christmas but on FX IF I see the market continuing to follow my road map scenario I will look to add to my Longs on a rally away from the current ST area of congestion as in this scenario I would expect a decent rally to either a wave A or all the way to the retrace turn, which could be a good skip of points.  Obviously if the reverse happens I would need to reassess.

 

US stocks are rapidly approach the Fib 50% area, which may offer a Shorting opportunity if we see appropriate price action.  Because I cannot tell yet if this is just a Wave A or the end of the relief rally I have to consider taking a position early and then wait to see how the price action progresses, otherwise I would get left behind.  So for me the time to do nothing may now be coming to an end IF we see a break down in the Stocks rally and a breakout rally on EURUSD and GBPUSD.

[Mercury]

GBPUSD has rallied away from the daily Triangle line after the sharp bullish pinbar around the Brexit deal vote in Parliament and looks set to follow my road map at least to the possible wave A completion zone (circa 13300).  Given the strength of the move and other indicators I would not be surprise if the wave A carries much further than this.  I have been adding to my Longs, all now stop protected at BE and will await further price action to see how the retrace will progress.  I remain targeting a medium term end to the rally around the 14000 zone before the next big Bear move.

 

[Mercury]

GBP rally continues and now with EUR following suit we may anticipate a period of USD weakness.  Just as with EUR I an expecting a retrace (or perhaps more likely a consolidation phase)  on GBP before the next leg up and consequently the Wave A turn could be up around the 13,600 area, but as always the market will tell the tale in due course, we just have to be open to the signs and ready to take advantage of the swings as they unfold. 

[Mercury]

GBPUSD has been behaving better than EURUSD of late, curious one would have thought if BREXIT mattered it would matter more to GBP but then this is why I don't waste too much time overthinking such things (Que Sera Sera and all that...).  I prefer to watch the price action and map it with scenarios as they unfold.  I have been chasing a USD retrace for some time and it has been a long time in the making but perhaps it is finally here. Price action on Friday may be the moment I look back on and say "yes that was the signal".  I have written elsewhere on DX and EUR but GBP could be ahead of the game this time.  A quick look back to the Weekly to show a possible wave 1 completion with the market now perhaps turning to complete the Wave 2 after a period of Bearishness over the past few weeks.  Target remains in and around the 14,000 level.

On the Daily I still have a valid Triangle breakout and now a retest of the breakout zone in a possible Wave B completion.  My only concern is that there could easily be another leg down to this pair while EURUSD simply retraces (i.e. doesn't make a lower low).  The reasons are that the Fib 62% lies just below and this coincides with a strong pin price action move on the previous rally.  In addition I don't see much PMD about.  The market should reveal this next week.