Trade view /
18 July 2016 at 10:07 GMT
The USD Index is sitting within a channel formation. This can be seen as a bullish flag that has a bias to break to the upside, and dips are to be bought.
The immediate bias in GBPUSD is bearish, but the downside could be limited. Tomorrow's CPI (Consumer Price Index) could put a temporary bounce into sterling. Here is what we see:
Monthly – The longer timeframe is seeing some dip buying close to the 78.6% pullback level of 1.2673. We can see no technical reason for a change of trend over the long term.
Four hour – This timeframe highlights a bullish five-wave pattern (Elliott wave). Corrective sequences are normally in three legs, so this could be part of a correction higher, the AB leg of an AB=CD corrective formation.
A move lower and we have strong support at 1.3058. This is the 61.8% pullback of the last rally and trend line support, possibly forming the right shoulder of a bullish reverse Head-and-Shoulders pattern.
30 minutes – Shorter timeframes highlight the pair moving higher in a corrective channel formation. Trendline resistance is seen at 1.3320. We have bespoke resistance at 1.3320, and the previous swing's high at 1.3337. This area is also between the 50 and 61.8% pullback levels at 1.3306 and 1.3347 respectively.
This is our prime area to get short, but the call is only for today. If we get a rejection of the dip after tomorrow's CPI, then our medium-term bias will turn temporarily bullish.
Correlation – It should also be noted that we are looking for a larger correction lower in EURGBP.
Management and risk description
If the trade is onside running into tomorrow's CPI, we will look to move the stop to entry.
selling at 1.3320.
trigger today only. Target within two days (over or before the CPI figures).
— Edited by D. Deacon
Non-independent investment research disclaimer applies. Read more