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Learn Forex: Ichimoku Hints Additional GBPUSD Upside on Price Break

Learn Forex: Ichimoku Hints Additional GBPUSD Upside on Price Break

Tyler Yell, CMT, Currency Strategist

Who said light volume meant light moves? The Great British Pound (GBP) has been a headline currency as the cable has been stronger across the board. Your job now becomes finding the ideal opponent to trade against the GBP and the Ichimoku indicator has elected the US Dollar (USD) based on recent price action.

When you perform a strong weak analysis, you will find that the GBP isn’t as strong as other currencies like the New Zealand (NZD) or Swiss Franc (CHF). However, the weaker Japanese Yen (JPY) & USD have provided ideal trend following set ups for the GBP when using the Ichimoku Indicator. Your job is to find the pair with the better entry which Ichimoku shows is the GBPUSD and not the GBPJPY.

Learn Forex: GBPJPY has run away from an ideal entry as price is 500 pips from the base line (blue)

(Created using FXCM’s Marketscope 2.0 charts)

Fundamentally Speaking

The GBP has become a favorite financial story thanks to Mark Carney. Mark Carney is currently the head of the Bank of Canada. Canada famously avoided the depths of recession that has plagued the rest of the world since 2008. What makes Carney unique is that his success in Canada prompted Her Majesty the Queen and the Bank of England (BOE) to recruit Carney as head of the BOE effective May 2013.

Not only is Carney seen as a big upside for the GBP, the BOE has also discussed Nominal GDP targeting which would allow Carney to use the GBP to guide the UK Economy to further growth. In the meantime, the USD has been sentenced to low rates for the near future as the Federal Open Market Committee (FOMC) agreed to tie interest rates to unemployment rates. Many economists believe this could keep US Interest Rates very low until 2015 or further.

Now that you understand the fundamental back story, here is what the charts are revealing when we add the Ichimoku Indicator.

Learn Forex: All rules align on the Ichimoku Bullish Strategy for GBPUSD

(Created using FXCM’s Marketscope 2.0 charts)

Ichimoku Trade: Buy GBPUSD @ Market

Stop @ 1.6010

Limit @ 1.6400

Ichimoku Trading Strategy Rules

Your first filter will always be price in relation to the cloud. In the last Ichimoku last report, you were introduced to the concept that price above the cloud will always frame your entries to buy only trades. GBPUSD broke through the cloud and because price is firmly above the cloud, you can now look to the other rules aligning for an entry.

As displayed on the chart, the other rules are supporting a GBPUSD buy trade also. Secondly, the black Trigger Line has been above the light blue Base line for the entire month of December. Thirdly, the green 26-period lagging line can be used as an additional indicator of the future resistance or open path for upside on GBPUSD.

Lastly, the orange 26-period future line is pointing up and shows that support is rising. We will use multiple points of the indicator to place our stop which is a red horizontal line on the chart at 1.6010. This stop is right below the bottom of the cloud and the light blue base line giving the GPBUSD room to breathe if the uptrend continues.

Entry Tip When Using Ichimoku

Many of you may be licking your chops at the GPBJPY above. The reason that entry is no longer ideal if you’re not already long GBPJPY is determined by the distance of current price from the base line. It was noted that GBPJPY is currently 500+ pips away from the base line which acts as support. Many of you know that the base line is a 26 period moving average.

When you have price too far away from a moving average, you will often see an equalizing of price moving back toward the range’s average. Price balancing back into the range is the concept behind the Commodity Channel Index oscillator which measures statistical variation from the average price. Markets often revert to the average price even when average price is rising.

The trend may still be valid but you must exercise patience to use Ichimoku well. Patience is used to make sure you have a proper exit and entry once a trend is identified.

Learn Forex: GBPNZD shows you to be careful of jumping into an extended move on a trend

(Created using FXCM’s Marketscope 2.0 charts)

Stay patient as the worthy trades will make themselves known to you in time.

Happy Trading!

---Written by Tyler Yell, Trading Instructor

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.