GBPUSD: Short Term Bullish Momentum Tests Just Under Static Resistance Level
The daily candle chart below shows the price history of the Great British Pound (GBP) versus the United States Dollar (USD) over the medium term and trading at 1.5696 (as of publication) today. This currency pair is generally known as GBPUSD. We can see below how the highest price reached in today’s trading session (1.5731 so far) coincides just under a static medium term resistance level (point 7 on chart in grey).
The momentum of the last few candles appears consistent with the slope of very short term steep bullish momentum (point 3 in aqua) which may be developing. If the static resistance line (point 7) can be overcome, then a bullish continuation may follow with support - in the case of any brief pull-back - on the support line of the medium term bullish channel (point 4 in green). This support channel has contained the pair over the last few months. The overall trend and potential reversals where discussed in a previous article in late August 2013.
Although the recent price action is bullish, a bearish reversal may follow (on point 7) with the pair following a line which could develop similar to previous short term bearish resistance (point 6 in yellow). If this happened, the pair could re-test the support line of the medium term bullish channel (point 4) -which if failed to hold – may propel the GBPUSD back onto the medium term bearish resistance lines (point 9 in magenta & point 8 in dark red) with further support on medium term bullish support (point 2 in dark green) and long term bearish resistance (point 5 in red). Since the medium-to-long-term trend may still be bearish despite the strong bullish momentum over the short term, traders may watching for a pullback after further short term bullish momentum.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.5745 with a Limit to take profit @ 1.5800 and a stop-loss @ 1.5695 Risk/Reward Summary: Limit risk = +55 pips profit / (-50) Stop-loss risk = Gain to Loss ratio = 1.10
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.5655 with a Limit to take profit @ 1.5601 and a stop-loss @ 1.5689 Risk/Reward Summary: Limit risk = +54 pips profit / (-34) Stop-loss risk = Gain to Loss Ratio = 1.58
Daily candle chart: