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Forex Strategy: GBP/USD Dark Cloud Cover Signals Significant Correction

Forex Strategy: GBP/USD Dark Cloud Cover Signals Significant Correction

David de Ferranti, Currency Analyst

Talking Points

  • GBP/USD Technical Strategy: Shorts Preferred
  • Range between 1.6600 and 1.6765/70 broken
  • Dark Cloud Cover on weekly warns of larger correction

The Pound has broken its recent trading range between 1.6600 and 1.6770 suggesting further declines may be in store for the currency. This comes following several successive short sessions that suggested conviction was not strong enough amongst the bulls to push prices back to the 1.6770 top. The break lower opens the 61.8% Fib Retracement level at 1.6470 and below that a target is offered by the 2014 low at 1.6260.

GBP/USD Breaks Recent Range

Forex-Strategy-GBPUSD-Dark-Cloud-Cover-Signals-Significant-Correction_body_Picture_3.png, Forex Strategy: GBP/USD Dark Cloud Cover Signals Significant Correction

Daily Chart - Created Using FXCM Marketscope 2.0

Drilling down to the four hour chart; the Doji candlesticks noted in yesterday’s report resulted in an intraday bounce for the Pound to resistance at 1.6568. With a bullish reversal signal lacking, the currency may face limited upside potential in the session ahead. Given the context provided on the weekly and daily charts, a recovery for GBP/USD would be seen as an opportunity to enter new short positions.

GBP/USD: Gains Limited in Absence of Reversal Signal

Forex-Strategy-GBPUSD-Dark-Cloud-Cover-Signals-Significant-Correction_body_Picture_2.png, Forex Strategy: GBP/USD Dark Cloud Cover Signals Significant Correction

4 Hour Chart - Created Using FXCM Marketscope 2.0

The ominous Dark Cloud Cover formation on the weekly at multi-year resistance also remains on the radar, and is threatening a more significant correction ahead for the Pound. A potential target is offered by the 23.6% Fib Retracement Level near 1.6350.

GBP/USD Weekly Continues To Offer Warning

Forex-Strategy-GBPUSD-Dark-Cloud-Cover-Signals-Significant-Correction_body_Picture_1.png, Forex Strategy: GBP/USD Dark Cloud Cover Signals Significant Correction

Weekly Chart - Created Using FXCM Marketscope 2.0

By David de Ferranti, Market Analyst, FXCM

Follow David on Twitter: @Davidde

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