GBPUSD: Pullback to Prior 0% Fibonacci Level Testing Support to Avert Drop
The daily candle chart below shows the price history of the Great British Pound (GBP) versus the United States Dollar (USD), known as the GBPUSD pair, and currently trading near 1.6322 (as of publication), and just off lows of today near 1.6255.
Over the past two weeks the pair has continued to pull back from its recent bullish momentum,and reached a low today near the 0% Fibonacci level that had been previously drawn in months prior, and noted as a key support level in the last post about GBPUSD in this series.
If this line can hold, enough support can be gathered for buyers to push the pair back into the uptrend that has sustained it in recent months - despite its gradual shift into a less steep bullish channel. That combined gradual shift of the bullish momentum into a less bullish angle may have aided the pullback as the pair is increasingly looking bearish, especially if the 0% level is breached. Although from a longer medium term perspective, the trend still looks bullish - even if that momentum appears to be fading.
If this level fails, near the 0% Fibonacci line - around 1.6250 - further correction towards 1.6100 could follow down a line similar in slope to previous short term bearish momentum (such as point 9 in magenta on chart). The pair is well off multi-year highs just reach at the end of January, but not out of sight of the 1.67 level almost reached on January 24th 2014.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.6446 with a Limit to take profit @ 1.6484 and a stop-loss @ 1.6417 Risk/Reward Summary: Limit risk = +38 pips profit / (-29) Stop-loss risk = Gain to Loss ratio = 1.31
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.6237 with a Limit to take profit @ 1.6208 and a stop-loss @ 1.6262 Risk/Reward Summary: Limit risk = +29 pips profit / (-25) Stop-loss risk = Gain to Loss Ratio = 1.16
Daily candle chart: