GBPUSD: Emerging Bearish Channel Revealed as Pair Hits Resistance
The daily candle chart below shows the price history of the Great British Pound (GBP) versus the United States Dollar (USD). This currency pair is known as GBPUSD, and is trading near 1.6380 around time of publication today.
Over the last week following the expected volatility in the pair, prices peaked near the upper resistance line of the steeper bearish channel (point 2 in magenta color on chart below) before returning to find support on a small trend line that has supported the last few weeks (since the lows reached in early September).
This move following Scotland's vote to stay within the U.K. included a 209 pip swing on the 18th (ahead of the results), and 239 pip swing on the 19th (after the results), following the last post about GBPUSD in the Ideas You Can Trade series.
However, prices today are validating the existence of an emerging bearish channel (point 1 in white on chart below) where GBPUSD is having difficulty breaking above the upper resistance line of that channel. In addition, considering that the pair is still within both of these converging channels, the trend still looks bearish.
If a breakout to the upside of the emerging channel (point 1) occurs, along with a breakout of the steeper channel (point 2), then a more bullish recovery should allow the pound to recover higher levels. Whereas a failure to break above either of these or both, should cause another sustained drop - and perhaps back to test September lows near 1.6050.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.6467 with a Limit to take profit @ 1.6524 and a stop-loss @ 1.6438 Risk/Reward Summary: Limit risk = +57 pips profit / (-29) Stop-loss risk = Gain to Loss ratio = 1.96
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.6334 with a Limit to take profit @ 1.6270 and a stop-loss @ 1.6379 Risk/Reward Summary: Limit risk = +64 pips profit /(-45) Stop-loss risk = Gain to Loss Ratio = 1.42
Daily Candle Chart:
Daily Candle Chart zoomed out: