Happy Friday, Friends. It’s been a little while since I’ve posted on currencies here, but they are never far from my thoughts. As I looked at the daily charts this morning, GBP/USD seemed interesting. It has managed a rare feat by moving into an uptrend with the break above 1.5600, but I’m not at all enthused about buying it here. In fact, if it breaks back below 1.5600, I would be inclined to sell it, looking for a move back down to at least the 38.2% Fibo level at 1.5460. I wouldn’t be surprised to see it pull back a bit further, perhaps to 1.5400.
The stochastics have been showing an overbought situation for a while, but that in itself is actually bullish, rather than bearish. The Dollar does seem to be staging a rally more or less across the board, and when that occurs, GBP/USD can see some large (down) moves. We don’t have one of the three price patterns that Todd teaches us to use in looking for potential countertrend trades, which is why I’m inclined to wait for an actual break back below what had been resistance on the way up. That should now offer support, and a failure to hold would suggest that the retracement is picking up momentum.Â
If he move that I’m looking for occurs, GBP/USD in the daily timeframe will remain in an uptrend, and 1.54 would actually be a level to start looking to go long, rather than short. If I can pick up 150 or so pips in the meantime, however, I’ll be not just pleased, but delighted. Where to place a stop is an issue; a break above the recent 1.5736 high is an obvious one, but that’s more room than I’m willing to give a countertrend trade. Even the hourly chart isn’t helpful; in that timeframe, a downtrend is in place, but the drop from 1.57 and change was sufficiently steep that there isn’t anything close at hand.
If my thesis is correct, a move below 1.56 should be rather sharp. If a short is established, a look at the price action at that point should offer more clarity as to where I’ll know if I’m wrong. I’m thinking that 1.5655 should be about right, and I’ll be using the hourly bars to trail a stop down if the trade does work as anticipated. One of the many things that I’ve learned from Todd is that when the “Sell” button (in this case) is hit, the trade is over; profit targets and stops are in place (although, as noted, in the interest of preserving profits, the stop can be trailed down), and the market can be left to verify or invalidate the plan. It’s a good way to avoid both constantly second-guessing the trade, and the temptation to take tiny profits when a bit of patience will lead to plenty more.
Best of luck today.Â
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