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Forex: Ideas You Can Trade - GBPUSD Has 4th Most Bearish Day for 2014

Posted by Steven Hatzakis on Aug 14, 2014 2:45:00 AM

GBPUSD: Recovery Fails as Pair Pushes Through Two Fib Levels

The daily candle chart below shows the price history of the Great British Pound (GBP) versus the United States Dollar (USD), known as GBPUSD, and trading near 1.6670 around time of publication today.

Last time this pair was reviewed in the Ideas You Can Trade series, a recovery was expected and has since failed to materialize. On the other hand the bearish momentum has greatly picked up speed with yesterday's trading range the 4th largest bearish move for GBPUSD so far this year as the trading session ranged between a low of 1.6684 and session high of 1.6842 or 158 pips.

Now that the pair has gotten a whole lot more bearish a recovery of the medium term uptrend seems unlikely anytime soon, although volatility could increase as it had with yesterday's wide trading range. Earlier this year three such days occurred in January and saw the pair reach a YTD low of 1.6250 (which coincides with the 100% Fibonacci retracement level of the chart below). 

The 38.3% Fibonacci retracement (fib-level) was briefly attempted to be regained yesterday before the pair fell, and also failed to find support on the 50% fib-level, and is now approaching the 68% fib-level near 1.6600, all just in a matter of days.

As volatility may continue an equally-bullish move higher could precede a lower-low, thus requires caution trading either a bearish continuation or a short term bullish correction in what now appears to be a down-trend.

 Below are examples of how to trade a bearish continuation or a bullish reversal:

1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.6703 with a Limit to take profit @ 1.6736 and a stop-loss @ 1.6679 Risk/Reward Summary: Limit risk = +33 pips profit / (-24) Stop-loss risk = Gain to Loss ratio = 1.37

2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.6645 with a Limit to take profit @ 1.6612 and a stop-loss @ 1.6678 Risk/Reward Summary: Limit risk = +33 pips profit /(-33) Stop-loss risk = Gain to Loss Ratio = 1.00

Daily candle chart:

gbpusddaily august 14 2014 note

 

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