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GBPUSD retrace trade


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The spike up and reversal (on retail data release) hit the Fib 50% off the wave B (brown).  If this is sustained then I would expect a test of the 12950 and the 12900 in fairly short order.  Watch out for a short term bullish retrace, which would offer a route for a Short.  This is currently consistent with EURUSD but I think GBP will fall further as the EURGBP pair is signalling a rally for a while at least.

GBPUSD-1-hour_170120.thumb.png.51ae5d06de3ebd5b7bb7ea65e8f2c698.png

 

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In a classic case of "buy the rumors sell the fact" the consensus beat on UK PMI spiked GBP and then other forces took hold, maybe underlying Brexit 3 July deadline jitters, more likely underlying weakness in the economy (rate of change), which this data does little to mitigate.  Whatever the reason the price action is consistent with my current thesis, that GBPUSD is in a wave B bear phase after a strong wave A to 12 Dec.

There is a gap around the 12,950 area, which I am now targeting next and if this is broken then the support at the weekly channel breakout point (circa 12,740) would be the next support for a turn for me.  Failing that, and my lead scenario assuming EURUSD continues to drop and EURGBP to rally, is a retest of the weekly channel line itself that could coincide with the Fib 76/78% area.  There is strong NMD at the recent spike and turn and that pin bar is compelling, if it is sustained for the day close.  I expect a bit of a short term rally but after than further drop.

GBPUSD-Daily_240120.thumb.png.6dda41b3bf4eed6c69161564cd6bde34.pngGBPUSD-1-hour_240120.thumb.png.e185dc62f79345b532ec6d8e110c9b7a.png

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While waiting for Stocks to resolve the current support level (rally or breakdown?) I am interested in GBPUSD.  I think USD generally is on another rally phase but GBPUSD looks set for more weakness than some others, especially if I look at the EURUSD and EURGBP triad.

The big picture looks as follows to me:

  • Dec 2019 high looks more like a potential wave A than a 1 (could be a bearish A-B-C - i.e. we will see lower lows vs the Sept 2019 low).  So two main scenarios, both bearish.
  • My A-B (brown) could be a 1-2, which would follow the lower low scenario but for now I see it as an A-B and am tracking where a wave C might end and turn.  Candidates include a retest of the weekly channel trend line breakout zone (circa 12,700) and that would be the Fib 50% level.  Also a retest of that weekly channel line around the Fib 76/78% is a good candidate and depending on what happens on EURUSD this second target would fit better with the EURGBP leg of the Triad where I see a strong rally in the offing.
  • The recent price action is also either an A-B (pale blue) or a 1-2 and there is a small price gap around the 12,950 level, which I think will be closed.  This would result in a lower low vs the 14 Jan low and then a test of the late Dec low (circa 12,900) would be on.  A break of this low would put this pair in clear space for a longer bearish move in line with both my scenarios.

I do not have a bullish scenario from a technical standpoint at present and with the trade negotiations and EU separation coming up uncertainty seems to be a key fundamentals driver at present.  I suspect we will see this, and the general USD strength playing out for a while yet.  That being the case, the technical scenarios are all bearish, just a question of which one plays out.

GBPUSD-Daily_280120.thumb.png.56dc14c9b3ae3cc77d98d376b97e26ed.pngGBPUSD-1-hour_280120.thumb.png.a63c4b0e3d22402e90c5f52d5d9596d4.png

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1 minute ago, cheviot said:

Head n shoulders anyone ?   

Could be.  I only look at H&S on Daily/Weekly charts at the end of major trends but that would fit my EWT lead scenario for a bear phase in GBPUSD.  Also note other USD pairs are holding back so USD strength still rules.

Fib 62% (13,100) could be key but GBP is spiky so could spike up through and fall back.  Hard to trade, I will wait for a confirmed turn.  A break of the previous high (13,175) would not negate the longer term bearish scenario, even though the 1H H&S would be negated.

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1 minute ago, Mercury said:

I only look at H&S on Daily/Weekly charts at the end of major trends

I just wanted to add my tuppence on this point, such patterns have far more significance if they form over a period of weeks or months.  On hourly charts they are more like mirages.

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1 minute ago, dmedin said:

I just wanted to add my tuppence on this point, such patterns have far more significance if they form over a period of weeks or months.  On hourly charts they are more like mirages.

Mmm  I agree but i m bearish £ medium term....(cable)  not sure about £€ that might retest 82p € .   

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1 minute ago, dmedin said:

such patterns have far more significance if they form over a period of weeks or months.

Fully agree @dmedin, not only do I only look at the longer term charts but the time elapse between the points (same for double tops) must be at least 3 months (just a rule of thumb).  Even then you can get these formations at continuation zones so context is king.  A chartist will only look for such formations at the end of major phases (for EWT that means at the end of a wave 5 or C).  However that doesn't mean short term chart users can't get a bearing like this as well but again it needs to be at a likely point of trend reversal for me, otherwise I prefer to use EWT as a guide. 

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I agree H and shoulders are generally best viewed with a distance but in essence it is the same price action over any time frame....All it shows is a price level the market is trying to push through...... So that can be 5 minutes or 5 years....But the effect will be relative to the time frame....

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On 01/02/2020 at 17:57, cheviot said:

I agree H and shoulders are generally best viewed with a distance but in essence it is the same price action over any time frame

That is true and what is more it depends on whether one is a long term trader or a Day trader or scalper etc etc.  My point is simply that on Daily and longer term charts H&S formations, hell all chartist patterns, are more reliable in the right context.  Patterns like H&S in the context of a viable trend change occur rarely on daily/weekly charts and therefore should be taken seriously but they occur regularly on 1H and below and often do not hold.

Having said that, if I see a short term H&S on say a 1H chart is supporting other analysis that is indicating a turn so much the better.  Just isn't part of my set up.

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GBPUSD remains within my Bearish scenario (as does EURUSD).  With a series of A-B-C whipsaw moves done the current strong move seems like a wave C down.  A small gap has now been closed but there is another above, which I don't expect will be closed until the market drops much further.  Short term however I do see a relief rally to set up the wave 3 of wave C, this would be the big one in this move.  Note the PMD on the 1H chart after a fast 1-5 down.  I would expect the relief rally to conform to an A-B-C form before turning and moving fast back down.GBPUSD-Daily_040220.thumb.png.3c33e702524a36fbecf3a49cf3ea8aef.pngGBPUSD-4-hours_040220.thumb.png.69ed1fbaf21e1838f91dbd79013f12d8.pngGBPUSD-1-hour_040220.thumb.png.c440248a3a0f2c10e4fa5f079b20f7b8.png

My target for the end of the Bear phase is circa 12,400, which would be a retest of the weekly channel line and the Fib 76/78%.

 

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GBP is zooming up and down without rhyme or reason (apparently the markets are shocked that the EU and BoJo have started bickering again, Brexit was resolved by the Tory victory after all).  Good luck getting stopped out with futile trades on this one

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7 minutes ago, dmedin said:

GBP is zooming up and down without rhyme or reason

I see it as following a complex bearish retrace pattern, the reasons for the moves interest me less, except to say that the prevailing wind is USD strength, for now.  Once we see a decent retrace up on this pair I will look to Short on turn signals at key resistance points.  should be a decent haul of points for a carefully executed trade.

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2 hours ago, dmedin said:

Precisely the kind of market that causes the most losses.  Horrible.

Yes if you don't have patients to wait for the direction to show itself and the least risky trade to materialise.  The first rally up after the top was a hit on the Fib 62%.  As I was anticipating a bearish phase wave B I figured this to be a decent Short, which it was initially.  The second was not tradeable for me.  the third and recent would have been a big risk and after the turn gapped down it was logical to assume the gap would be closed.  It wasn't and now I see this as a breakaway gap for this bearish move (i.e. it will not be closed until the next bullish move).  The move down from there was a fast 1-5 and so I am expecting an A-B-C relief/retrace rally (counter trend) that ought to turn around the Fib 62% (+/-).  So the trade that is least risky on this whole move since the top out is yet to come, which would be that retrace rally and turn at a suitable resistance level.  Might take a few attempts to catch it but after than we might anticipate a fairly fast wave 3 that will take us back to the weekly trend line most likely.

The key to this type of situation is to be clear in your mind what the direction is going to be and only trade that way (down for me).  This means you don't get caught up in trying to trade every move.  Patience for the move to reveal itself (or negate) is then vital.  A break of 12,900 is critical to the bearish set up but you want to try to get in before that as there is often a reversal at such vital levels.

 

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GBPUSD turned just below the Fib 50% (EURGBP just below the Fib 62%).  Looks like the bear move is fully on.  Outside chance of a reversal but a break to a new lower low would negate that so first up 12,940 and the 12,900 to get this pair into clear space below.

GBPUSD-1-hour_050220.thumb.png.b8a11a17dd0f5349af87d3f8647ea467.png

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On 06/02/2020 at 13:44, Mercury said:

Check out the weekly chart...  Anyone got a bullish scenario?

GBPUSD-Weekly_060220.thumb.png.ce592a194b209ae4a2aca8e802060625.png

I see it very similarly,,,,,I am a bear but willing to believe that this a bottoming formation to test 1.29 before final rally (and C of B ) to retest 1.33 ish.  See £ going lower into lower 1.20 s or even lower.  I think the 1.35 rally was the end of a C wave correction which will end in resumption of the downtrend started in june 2016 at 1.45.   Probable retest of $1.00  !!!!   

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