GBP Technical Analysis

GBP/CHF Triangle Pattern with an Elliott Wave Twist

Talking Points:

• Daily Triangle Consolidation in GBP/CHF
• Clear Elliott Wave Pattern Also in Progress
• The Ideal Time Frame for Selling GBP/CHF

As many currency pairs move into more confusing territory amid deeper pullbacks on their respective daily charts, the market environment is becoming one where probability favors the downside in many cases.
There are several valid responses to these conditions, one of which is to reduce risk on each trade. This will be particularly attractive to those who have been on winning streaks and wish to preserve recent gains.
Also, bear in mind that it’s best to not try to outsmart the market, so the best response is still to steadily take trades as the set-ups are being presented, and then manage each position as the market response develops.
The daily chart below of GBPCHF reflects a longer-term uptrend, but also a triangle-type consolidation pattern. Applying a Fibonacci expansion to recent price action reveals that there is a level of hidden resistance at 1.4845. Alone, this would be insufficient reason to take the trade, but Elliott wave theory provides another potential reason.

Guest Commentary: Daily Triangle Consolidation in GBP/CHF



According to Elliott wave theory, every triangle should consist of five main waves, each containing a three-legged move. Thus far, there have only been three of these waves, which suggests that the current upswing should soon turn around within the triangle.

On the daily chart below, the 38.2% Fibonacci expansion level has been retained for reference, and a rough plot of how it should develop according to classic Elliott wave theory has been supplied. Of course, in the real world, anything can happen, but the best response is simply to enter short at the overhead resistance level in anticipation that this pattern will develop and ultimately complete.

Guest Commentary: Elliott-Inspired Set-up in GBP/CHF



The four-hour chart below readily provides a resistance zone using the 38.2% Fibonacci expansion level coupled with previous support and resistance for GBPCHF. This key zone where a reaction is likely to materialize is 1.4845-1.4899, or 54 pips deep. That level of risk is very much acceptable for any cross pair involving the British pound (GBP).

Guest Commentary: Key Resistance Zone for Selling GBP/CHF



A move to the bottom of the triangle formation would yield 100 pips or more, and although this trade is slightly less “juicy” than some others in terms of risk profile, when considering the consolidating nature of the markets and the need to be defensive in trade management, it is still quite appealing.

Any potential trade entries should be found on the hourly chart (not shown), which will facilitate a reduction in risk. Acceptable triggers will include pin bars, bearish engulfing patterns, and bearish reversal divergence.
Finally, and as always, two or three tries may be needed to trade this set-up, and indeed, multiple positions should be used in order to scale out should the trade begin to hesitate after the entry.

By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com


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A GBP/AUD Long That May Trigger Again

Talking Points:

• Daily Trend Line Break in GBP/AUD
• Price Reacting Off Short-Term Support
• Looking for a Second-Chance Entry Signal

After some prolonged choppiness this week, it was certainly a welcomed sight to see the GBPCAD trade we profiled here yesterday move violently in our favor. However, traders will note that the bulk of the move was actually supported by the Canadian dollar (CAD), and not the British pound (GBP), which has instead continued somewhat sideways.
Thus, today's GBPAUD trade, which also favors the long side, is intended to catch a move up in the pound while also benefiting from a potential weakening in the Australian dollar (AUD).

Traders often wait impatiently for price to come towards a trend line, but when it is actually tested, they fear the entry, wondering whether the trend line will hold. In line with the dictum that it is better to trade “with the trend,” the assumption that it will hold at some point is usually better than the alternative.
In the case of GBPAUD, it is best to treat the break of the trend line on the below daily chart as a false signal, or at least one that will generate a retest of the broken trend line.

Guest Commentary: Daily Trend Line Break for GBP/AUD



The four-hour chart below shows that price is already at support that has been generated from past horizontal price action. The desired move to the upside has in excess of 400 pips to reach the previous high. Meanwhile, the support zone is 1.8260-1.8373, or 113 pips deep. This clearly represents a favorable risk profile, making this long set-up in GBPAUD one worthy of consideration.

Guest Commentary: Key Support Zone for Buying GBP/AUD



The hourly chart, however, reveals some complications with regard to this trade's entry.

As shown below, bullish reversal divergence is already visible on the hourly chart, and price is beginning to turn up. Although the more intrepid traders may be tempted to hop on, this market environment is still far from safe, and as a result, the preferred entry trigger would be for price to make a lower low and flash another divergence signal. It is also possible to enter on a pin bar or bullish engulfing pattern once that lower low is made.

Guest Commentary: Awaiting Another GBP/AUD Entry Signal



If price runs up without providing one more swipe for entry, then it is likely better to miss this trade than to try and hop onto it too early (or perhaps too late). If it does come back down, then two or three tries at the entry would be appropriate given the attractive nature of this set-up.

By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com


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Talking Points:

• Potential Re-test of Broken Trend Line
• 2 Concurrent Signals on the 4-Hour Chart
• Rising Wedge Pattern in Play for GBP/AUD

It is rare for a double-top pattern to represent a potential entry point in forex—or in other markets, for that matter—as prices often overshoot the estimated turnaround area. Today's trade is no exception to that general rule, although this is as close to a double top as we’re likely to see in such choppy markets.

The story begins on the daily chart of GBPAUD, which is showing somewhat bearish momentum. A trend line was recently broken, but it has yet to be retested. That is a prime opportunity to look for a potential short set-up in order to hop on should the trend line break prove false and the move continue to the down side. Nonetheless, even a return to test the top of the broken trend line would quite easily produce a move in excess of 200 pips.

Guest Commentary: Daily Trend Line Break in GBP/AUD



As seen on the below four-hour chart, price has already hesitated once at a previous overhead resistance cluster, as marked. The pin bar that resulted on the four-hour chart did not result in a downward move, but it was sufficient evidence to support the continued presence of sellers in the area of the shaded blue box. Should price reverse from its current location, a double top (or as close to one as can be reasonably expected in forex) would be formed.

It is also worth noting that this short trade is actually in the direction of the daily trend, and not against it.

Guest Commentary: Key Resistance Zone for Selling GBP/AUD



The estimated resistance zone is 1.7976-1.8061, an area that is 85 pips in depth and ultimately insufficient from a risk standpoint to justify taking this trade. As a result, a lower time frame will have to be employed in order to improve the ratio and find a viable trade trigger.

Things look rosier on the hourly chart below, where a wedge-type pattern has formed. Price is now creeping steadily along the lower boundary of the wedge, which is a sign of decreased momentum. It may well simply break down here, although it is equally possible that a retest of the highs or even a temporary spike past the top of the wedge may occur.

Guest Commentary: Rising Wedge on GBP/AUD Hourly Chart



In all, the safest response is to hold off until at least a new high has been made, allowing for the potential occurrence of bearish reversal divergence in the process. Should such divergence not appear, pin bars and/or bearish engulfing candlestick patterns would also indicate viable short-entry opportunities, particularly if price made a last-minute momentum move.

The hourly time frame should provide a risk zone most likely in the 35- to 50-pip range, which is small enough to justify taking this trade. Nonetheless, two or three attempts may be required to successfully hop on to this move. One last item firmly in this trade's favor, however, is the fact that the four-hour chart is currently displaying six consecutive bullish bars, and reversion to the mean theory suggests that GBPAUD is now overdue for some bearish movement.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com


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W1 price is on bullish market condition for the ranging between R3 Pivot at 2.1844 and R2 Pivot at 2.0574: the price is crossing second pivot resistance level at 2.0574 from above to below for the secondary correction to be started with 1.9753 first pivot resistance level as the next real target.

Instrument	S1 Pivot	Yearly PP	R1 Pivot	R2 Pivot	R3 Pivot
GBP/AUD	1.7661	1.8482	1.9753	2.0574	2.1844

If the price will break R3 Pivot at 2.1844 from below to above so the primary bullish trend will be continuing
If W1 price will break R2 Pivot at 2.0574 level from above to below so the secondary correction within the primary bullish condition will be started.
If not so the price will be ranging within the levels.

• Recommendation for long: N/A
• Recommendation to go short: watch close weekly price to break 2.0574 support level for possible sell trade
• Trading Summary: correction

W1 price is located between 200 period SMA and 100 period SMA for the ranging market condition within the following key reversal support/resistance levels:

• 2.0418 resistance level located above 100 SMA/200 SMA area in the primary bullish area of the chart, and
• 1.7926 support level located near 200 SMA on the border between the primary bearish and the primary bullish area.

Trend:

• D1 - ranging bearish
• W1 - ranging
• MN1 - correction

D1 price broke Senkou Span line to above for the reversal of the price movement from the primary bearish to the ranging bullish market condition: the price is located tobe inside Ichimoku cloud for the 1.9446 resistance level to be started for the bulliush trend to be continuing.

Absolute Strength indicator is estimating the primary bullish trend, Trend Strength indicator is estimating the bullosh to be continuing in the future, and Chinkou Span line is evaluating the trend as the ranging bullish condition.

D1 price is located near Senkou Span line on the ranging condition waiting for direction:

• if the price breaks 1.9871 resistance level to above on close daily bar so the bullish trend will be resumed;
• if the price breaks 1.9032 support level to below so the reversal of the price movement from the ranging bullish to the primary ebarish market condition will be started.

Monthly price is on breakdown: the price was bounced from 200 SMA to below with 1.7132 support level to be broken for the bearish breakdown to be continuing.

GBP/AUD: bearish ranging within narrow sa/r levels for direction. This pair was reversed to the primary bearish market condition by breaking Ichimoku cloud to below in the beginning of the january this year. For now, the price is on bearish ranging within narrow support/resistance levels waiting for the rally to be started or for the bearish trend to be resumed.

• if the daily price breaks 1.6267 resistance so we may see the secondary rally within the primary bearish market condition;
• if the price breaks 1.6591 resistance so the price will be reversed from the primary bearish to the primary bullish condition with the secondary ranging;
• if the price breaks 1.5991 support level so the primary bearish trend will be resumed ranging up to the new 'bottom' to be formed;
• if not so the price will be moved within the channel.

Resistance	Support
1.6267	1.5991
1.6591	N/A

AUDUSD: Retail trader data shows 51.7% of traders are net-long with the ratio of traders long to short at 1.07 to 1. In fact, traders have remained net-long since Oct 24 when AUDUSD traded near 0.77751; price has moved 0.7% lower since then. The number of traders net-long is 8.2% lower than yesterday and 6.6% lower from last week, while the number of traders net-short is 2.2% lower than yesterday and 6.8% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed AUDUSD trading bias.

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