Day trade
Trade view / 12 October 2016 at 7:41 GMT

Dip buying in GBPUSD offers good risk/reward

Analyst / PIA First
United Kingdom

USD Index: A word of warning for USD bulls this morning... Although we have broken the bullish ascending triangle to the upside, we have stalled at the 161.8% extension level of 97.62 (from 94.06-96.26) so there is ample scope for a correction lower. 

We should expect the move to be mixed and volatile. We also have Federal Open Market Committee minutes tonight that could push the dollar to the downside. 

USD Index
Source: Saxo Bank 

One thing to note here is the daily chart. We are in a bullish channel but the inside waves are made up of three waves, highlighting that this move is corrective. We are close to the previous swing high so we could see a more aggressive correction. 

USD Index D
Source: Saxo Bank 

It is for these reasons I am looking to take a USD short this morning and, with GBPUSD having a good rally overnight, dip buying looks promising. This is high risk but also offers great risk/reward if the formation holds. 


Monthly: Not 100% sure where the selloff stalled but between 1.1900 and 1.1750 looks to be the range. The latter is close to the Fibonacci confluence area at 1.1593-1.1441. 

Source: Saxo Bank  

Weekly: Highlights a solid bearish Elliott Wave count. The fifth wave extension is seen at 1.0320 (from 1.1798-1.4571). This wave (the fifth) is by far the hardest to trade as it can run short or play long.

 Source: Saxo Bank 

Daily: With dips being bought under the 261.8% extension level there is scope for the first inside wave pattern to now be complete. We have inside days (indecision) but that is not surprising after Friday's strong selloff. 

Source: Saxo Bank 

Intraday (30 minutes): The only reason I have attempted a small long this morning is this timeframe. We have scope for a reverse head and shoulders pattern that offers great risk/reward. 

Signals are far from strong but we do have bespoke support at 1.2252, very close to the potential right shoulder. I have taken a small long (one unit) and will look to double up if we can break the neckline at 1.2325. Measured move target is at 1.2560. I need an hourly close above 1.2249 to keep this call alive


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Source: Saxo Bank 

Management and risk description

It should be noted  that this is a high-risk trade that offers good risk against reward.


Entry: long at 1.2274 (one unit) buying one unit on a break of 1.2325.

Stop: hard stop at 1.2150 or a close below 1.2249 .

Target: 1.2560 (measured move).

Time horizon: one or two sessions.

— Edited by Michael McKenna

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12 October
Andrew Perkins Andrew Perkins
hi Ian whats your take on the cable more downside then long to 1.2500 or hold until after the fed minutes later
12 October
Ian Coleman - First 4 Trading Ian Coleman - First 4 Trading
I am holding it but not very hopeful
12 October
Andrew Perkins Andrew Perkins
more bad news might come out in the coming months which might give to 1.1000 not sure on this one , see what the fed do later , nothing properly
12 October
Estuardorlemus Estuardorlemus
Are you holding the position Ian ?
12 October
Ian Coleman - First 4 Trading Ian Coleman - First 4 Trading
Yes. Still long
13 October
Karen Holander Karen Holander
This comment has been redacted


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