Hi Forex Traders!
With the prospect of the debt ceiling limit being reached in the U.S. by October 17, the markets are a bit jittery and the prospect of large Forex movements might be subdued because of it. The chance of a major sustainable trend developing in this environment of uncertainty is low and a confirmation & resolution of the situation (most likely agreement not to default) will be needed before certain patterns can play out such as the potential USDJPY uptrend continuation.
With the warning of caution clearly stated and the prospect of choppy price action in the near future well noted, let us analyze the charts to see if any interesting Forex setups can be noted and found.
First of all, take a look at these articles, each has a trade setup idea:
I am sure that everyone enjoyed yesterday’s 15:1 / 20:1 trade idea on the EURGBP.
Ever since April this year, the 3,000 pip uptrend on the GBPAUD was fantastic trading for traders who consider themselves with the trend break-out traders. This is exactly the type of trading which our Forex trading room does and we were able to capitalize a lot on these great bull flag continuation patterns.
The uptrend, however, could be over and out and a trend reversal very likely. First of all, let us examine the weekly chart.
When looking at the weekly chart the GBPAUD was in tremendous downtrend needless to say. From October 2008 to July 2011 this currency pair fell from 2.7 to 1.48 in an epic fall of 12,200 pips (in 2year9months time), after which it went sideways until the recent 3,000 pip up move.
What can we expect now? Eventually downside is very high probability.
The reason is simple: even if the uptrend were to continue later on, price never moves in a straight line on 1 chart forever. There are natural ups and downs, movements from level to level, waves, and cycles that unfold on each time frame. Therefore eventually this weekly GBPAUD uptrend will get corrected with a downside wave at some point in time. And that time could be now.
First of all and most importantly, the weekly chart is showing that the current high has not been broken 6 weekly candles in a row (plus last week had a very bearish weekly candle as well). That means that the impulse to the upside on this weekly chart is running out of steam and a bigger downside correction can take place anytime. Also, the currency seems to be respecting the 23.6% Fibonacci retracement level of that entire 12 thousand pip down move.
KEY LEVELS AND TARGETS
The key weekly support level is at 1.6880. Once that weekly support breaks then the GBPAUD is posting a lower low for the first time since February this year. Once that indeed happens, a Forex trader can start aiming for the upside Fibonacci retracement levels. Any of the upside Fibonacci targets could cause the GBPAUD to bounce up and are great take profit price levels for any shorting. Those Fib levels are: 38.2% at 1.63, 50% at 1.5928, 61.8% at 1.5561 and 78.6% at 1.5038.
These Fibonacci levels could be the bouncing spot for more upside continuation as well. The currency pair could make a zigzag formation and then a bounce at the 38.2/50/61.8% levels is very likely. A three wave correction also makes sense considering the tremendous downside. The target for that upside is the -0.618 and 38.2% Fib retracement confluence at 1.9230 and 1.9408. The most likely scenario (also known as the path of least resistance) could look like this:
What do you think of the GBPAUD? Do you agree with the above? Will you use the info? Let us know down below!
Thanks for the feedback and sharing this article 🙂
And Good Trading!
Winner’s Edge Trading, as seen on: