Yesterday’s article discussed the bounce or break spots of the major currency pairs. Today I would like to focus on one of the crosses – specifically the GBPAUD.
The Great British Pound has recently been winning a lot of terrain versus the Australian Dollar. However, when placed in the context of a weekly chart it becomes obvious that the GBPAUD fall was a tremendous decline from 2.7 to 1.44, and the recent uptrend in fact is a mere retracement of the huge fall.
A few weeks ago the GBPAUD actually retraced back to the 38.2% weekly Fibonacci level of that entire down fall. Not only that: there was a -61.8% target as well which provided a confluence of resistance at that particular zone.
Traders in the trading room know that there was a high probability of bigger retracement as soon as the 6th weekly candle failed to break the top. Usually speaking momentum means that every candle (with a few exceptions) breaks its extreme (high/low) for a new higher high or lower low. When price failed to break the top 6 weeks in a row, the chances of the weekly uptrend maintaining its momentum were slim.
The conclusion and main question is now: how far can the retracement / downside go? Where are the next major support levels which could (temporarily) halt this downtrend on the lower time frames? Let’s review the daily chart first of all.
Here are the main observations:
1) The daily support trend line was already broken;
2) Yesterday’s daily candle broke the bottom of the first correction (green circle);
3) The next major support could be at the Fibonacci levels such as:
- The 50% Fibonacci and -27.2% target
- The 61.8% Fibonacci retracement level
- The -61.8% Fibonacci target
This would equate to a good wide open space to the downside within this down trend (red circles).
BIG TREND 4 H
On the 4 hour chart the full scale down trend becomes more visible. The down trend can be neatly framed by the down trend channel (purple). This channel is well established with multiple price touches at the top of the channel and a sustainable angle as well.
When placing Fibonacci retracement levels on the swing highs and swing lows, the currency has just recently bounced off of a confluence of two Fibonacci targets (blue and magenta Fib). The -61.8% and the -27.2% Fib targets were reached and price is now bouncing off of them.
Also price is relatively near the bottom of the downtrend channel. A retracement in this zone could make plenty of sense. If a retracement does take place, then this could be a very interesting short trade potential coming soon. The retracement could take place in different ways:
1) A chart pattern such as a bear flag or triangle;
2) A retracement back to the resistance Fibs (blue);
3) Any move back to the top of the channel (purple).
The 50% Fib levels looks particular interesting at the moment due to fact that that a resistance spot (wick) is close by (red circle).
Our DTT template is confirming the 4 hour downtrend but is placing the daily in the neutral category. Any trader that is looking to trade this has to realize that the downside trade is not fully with the trend as yet.
However, from a discretionary point of view, a short at the 50% Fib (green line) with a stop loss above the wick (red line) could be an interesting reward to risk proposition. Of course, this is a very tight stop loss. The other 2 spots (red lines) are looser stop loss levels.
What is your opinion on the GBPAUD?
Thanks for sharing and wish you Good Trading!
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