Hello Forex Traders!
Those of you who have seen yesterday’s video analysis know that I was keeping an eye on the GBPUSD due to its rising wedge. Well in fact, very soon after the video was published, the GBPUSD broke the rising wedge formation and is now moving due south in an impulsive way.
Forex traders should know that a rising wedge chart pattern is a bearish reversal pattern and not a continuation signal. Or, at least 80% of the time it is so. Problem is that rising wedges can take very long to actually turn around. The Cable kept pushing and pushing, inching forward the last 4 trading days, and refusing to fall. Now, finally, the classical break has occurred during the late New York and Asian trading sessions. What next?
RISING WEDGE BREAK CABLE
Rising wedges chart patterns are not easy to trade, primarily because they are counter trend trades. The following 3 scenarios are always applicable:
1) Trend continues – the break of the rising wedge does not automatically lead to the currency making a massive retracement and reversal. There are many cases where price bounces off of horizontal support or resistance after a break of the rising wedge.
2) Range – a break of the rising wedge could spell a bigger pause without offering a massive reversal or retracement.
3) Bigger retracement – the break of the rising wedge causes the currency to retrace way deeper.
4) Reversal – a total reversal occurs and the rising wedge was in fact the top or bottom.
Only point 3 and 4 are really interesting for reversal traders, obviously. On Monday we were already warning for the resistance close by, but let us examine the Cable and see which of the options seem more likely.
The chances of point 3, and maybe 4 (only time will tell) are pretty decent in my opinion.
a) Daily horizontal support area is only detected at around the 1.54 area. (green)
b) Daily trend line is at around 1.54 as well. (light green)
c) Last week’s candle low is at 1.5420
d) Yesterday’s daily candle had a sizeable wick on top (bearish)
e) Yesterday’s low has already been broken
f) The rising wedge pattern was built right in front of major daily resistance (red)
g) The 1 hour chart has seen an impulse down so far, which increases the odds of at least one more downside.
All in all, although I consider the current situation still counter trend, I would be interested in shorting if the GBPUSD were to make a bear flag pattern and then break that flag to the downside. Or when the GU retraces back up to the 500 Fib at 1.5650 and struggles at that level (candle stick rejection). The -0.618 at 1.55 and the -1.000 at 1.5460 are the targets for this downside.
TOPS AND BOTTOMS CLOSE BY
Also be careful with a few currencies are approaching tops and bottoms. GBPNZD is an example of a very bullish move running into major resistance a stone’s through away. The GBPNZD stopped at 1.9994 whereas the daily resistance clocks in at 2.0025. Of course the round number of 2.00 is another major psychological barrier for this particular currency pair.
The GBPAUD has already broken a similar top. In that regard trading this pair on smaller time frames up to the -0.272 target at 1.7620 has decent probabilities of succeeding.
I am interested in this currency if it were to retrace deeper back to a 382 or 500 Fibonacci retracement level OR if it were to make a triangle above the broken top (green) and break, which would indicate a continuation pattern and a sustainable break to the -0.272 target.
Before we finish, check out this great trade of mine on the AUD earlier this week!
I wish Good Trading in the last 2 days of the week. Tomorrow I will be back with an educational topic.
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