The GBPUSD closed the day on Monday with a decent sized bullish daily candle.
Will this turn out to be a retracement for more downside or could traders expect a trend reversal?
HOURLY FIBONACCI & S&R
With the 4-hour DTT trend indicator marked as red, Forex traders can quickly analyze that the current trend is down. Knowing the trend direction is extremely important, but obviously more information is required for trading purposes. Traders also need to know where support (uptrend) and resistances (downtrend) make a confluence because those particular areas are strong enough to stop a retracement and place it back in a trend.
By placing a Fibonacci retracement tool on the hourly chart from the top of the swing down to its bottom, traders can do just that: estimate where price can find resistance for a continuation of this downtrend to lower levels. Common Fibonacci retracements within a trend are 38.2%, 50% and 61.8% Fibonacci levels. With this chart, extra confluence is provided at the 38.2% and 61.8% Fib levels because of the trend line (orange) at the first number and the round number of 1.70 at the latter one.
Waiting for a candle stick pattern on the 1 or 4-hour chart to occur at the mentioned Fib levels would be the safer way of approaching an entry. Once the downtrend on the 4 hour chart continues, a take profit target at the daily and weekly bottom (green line) at 1.67 would make the most sense. Why? Because big levels dominant the playing field as they attract price (consolidation builds around them). Eventually though price will break or bounce at these key levels.
The NZDJPY has a similar pattern and structure as the GBPUSD. The 4-hour chart is in a downtrend according to the DTT trend indicator (both pairs have daily as grey as well). Both pairs also have lots of momentum to the downside (price moved down lower quickly).
The NZDJPY is also building on a very choppy upside correction which is looking like a rising wedge (blue trend lines). A reversal pattern (of the retracement) within a trend is an extra important confluence clue. Especially when a trader realizes that the pattern is happening at the 50% Fibonacci retracement level.
A down trend target is the bigger daily bottom at 85.85 – although a take profit at the -27.2 Fib at 86.23 is more conservative. The entry can be taken upon the break of the trend liens (magenta and blue); whereas the stop loss needs to be above the top (resistance) for downside trades.
Wish you Happy Trading!
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