GBPUSD: Support line of bullish Channel fails to hold as last two days sees downside exit
The daily candle chart below shows the price history of the Great British Pound (GBP) versus the United States Dollar (USD). This pair is known as GBPUSD, and trading near 1.6715 around time of publication after dropping sharply out of an ascending medium term bullish channel (point 4 in Green on chart below).
The uptrend that makes the lower support line of that medium term bullish channel had emerged in February earlier this year, near a low of 1.6245, followed by higher-lows reached on that line up until yesterday when the line failed to hold the upward support momentum.
Now that GBPUSD has exited the channel - a sharp return higher which would mean yesterdays' move was a false-breakout - could enable the pair to resume its steady momentum towards higher levels, whereas if the channel isn't regained in the next day or so, a lower-low should occur, as the confirmed exit of the channel is a bearish signal. Today's low is already lower than yesterdays' low, adding to the very short-term bearish prospects for the GBPUSD.
Last time the pair was discussed in this series, GBPUSD encountered resistance near 1.7000, a level that remains to exhibit selling presurre on the currency pair, and remains under the year-to-date high that reversed the direction since that last post earlier this month.
For now, the shorter-term fate of GBPUSD should rely more on what happens around this support line that just failed yesterday, in terms of whether it is regained or not, as described above.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.6855 with a Limit to take profit @ 1.6899 and a stop-loss @ 1.6831 Risk/Reward Summary: Limit risk = +44 pips profit / (-24) Stop-loss risk = Gain to Loss ratio = 1.83
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.6686 with a Limit to take profit @ 1.6651 and a stop-loss @ 1.6718 Risk/Reward Summary: Limit risk = +35 pips profit /(-32) Stop-loss risk = Gain to Loss Ratio = 1.09
Daily candle chart:
Note: Forex Ideas You Can Trade was not published on May 28, 2014, as the author was participating at a Foreign Exchange industry conference and not available due to travel while attending the event.