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GBP/USD Technical Analysis: Bear Flag Resistance Test

GBP/USD Technical Analysis: Bear Flag Resistance Test

2016-04-06 16:39:00
James Stanley, Strategist
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Talking Points:

  • GBP/USD Technical Strategy: Flat, new short setup identified
  • Sterling continues to be one of the few currencies showing weakness against USD.
  • SSI remains stretched in the Cable at approximately +1.79-to-1 and this is bearish; to check out our real-time SSI, please click here.

One of the most profound themes in markets over the past two months has been US Dollar weakness. This has become such an intense development that even a massive increase to European QE has been unable to offset the Dollar selling as EUR/USD has continued to strengthen. This USD weakness hasn’t been all bad, as American equities have continued to hold on to support after a frightening start to the year, and we’ve even begun to see a semblance of short-term strength in commodities, which can be helpful to numerous economies around-the-world, particularly those of the emerging market variety.

But one of the few currencies that have been even weaker than the Greenback over this two-month period has been the British Pound. With the Brexit vote looming in the UK a short 2.5 months away, traders have continued to treat the Sterling with an element of reticence that’s often reserved for potentially ‘game-changing’ geopolitical events. There’s just one problem, nobody quite knows the consequences of what a Brexit might bring, or what impact it may carry through for the UK economy. In the meantime, traders can refer to the chart to look for favorable setups, and in the GBP/USD we may have the re-emergence of the down-trend as we’ve recently seen yet another bear flag break (bear flag channel shown in red on the below chart).

The short setup at current would be an iteration of selling resistance at old support with not only the under-side of this bear flag, but also prior price action. The current price zone around 1.4152 is also the 61.8% Fibonacci retracement of the most recent major move, taking the February 2016 high-low range. This can open the door for stops to be cast just above the previous swing low, using the 1.4217 Fibonacci level as basis. Traders can look to place stops at 1.4225 with targets cast towards 1.4078 (prior price action swing low), 1.4031 (76.4% retracement of that same most recent major move), and then 1.3917 (the 27.2% extension of the prior major move).

GBP/USD Technical Analysis: Bear Flag Resistance Test

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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