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Price Action Setups Ahead of Bank of England (Sept. 12, 2017)

Price Action Setups Ahead of Bank of England (Sept. 12, 2017)

James Stanley, Senior Strategist

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- In this webinar, we used price action to look at short-term trade setups in the picture of bigger picture trends or themes.

- We first looked at EUR/GBP which is in the process of reversing from the prior bullish trend. Current support is coming in around the .9000-handle, but short-term price action does not yet look encouraging for bullish exposure. This feels like a bull trap, and traders can look for a deeper retracement in the longer-term trend before looking to load up topside exposure. A sustained break above the quick swing-high at .9037 can re-open the door to long setups.

- We then moved over to GBP/USD, which is in the midst of an extremely aggressive topside run. This appears to be based on the presumption that the BoE will tweak policy to be ‘less loose’ in response to the rising inflation being seen within the British economy. This isn’t the first time that we’ve seen this theme pop-up as prior, albeit more mild iterations showed in February/March and then again in latter July. But after another 2.9% inflation print for the month of August, buyers have pushed the pair up to fresh highs – the big question now is whether the BoE extends or reverses this move at their rate decision on Thursday. The short-term setup is to look for Sterling strength into BoE, at which point the short-side could become attractive again should the bank retain their dovish posture.

- GBP/JPY is also seeing a respectable bump with a +500 pip incline over the past few trading days. This takes the bullish GBP theme discussed above and adds in some additional Yen weakness. This is likely related to a combo of buyers attempting to front run a BoE move away from less loose policy, along with a cessation of worries around North Korea, which had previously kept the Yen strong. The longer-term setup offers a really attractive zone of resistance that has rebuked GBP/JPY advances on three separate occasions going back to December. This zone rests from 147.78-148.46, and a lower-high shy of this zone can open the door for short-side swings. Until then – near-term momentum is bullish.

- EUR/JPY could be more attractive for longer-term short-JPY exposure. We’ve looked at the pair multiple times during this bullish run, and we’re whittling up to a key zone of resistance around 132.00. The pair appears to be exhibiting traits of a short-term top on the hourly chart, and this can open the door to higher-low support around the 130.80-130.90 area.

- EUR/USD feels like a bull trap. The longer-term chart appears attractive for bullish short-term plays, but short-term price action continue to be driven by bears, and this could lead to a deeper retracement before the longer-term bullish setup becomes attractive again. Just above current prices is a resistance zone from 1.2134-1.2167, and if price runs up to this zone, we can use 1.2060-1.2090 for higher-low support plays. But – if a new high does not show up, short-term charts are highlighting bearish momentum, and this can keep the door open for near-term bearish plays.

- USD/CAD feels like a bear trap. That aggressive down-trend has finally found a couple days of retracement, and short-term price action is showing resistance at a key Fibonacci level. But a rounded bottom on the four-hour chart combined with a higher-low helps to indicate that seller supply may be drying up, and this can lead to a deeper bullish move before long-term shorts are ready for resumption. The level at 1.2180 is particularly interesting for this cause, breaks above followed by support keep the door open for short-term bullish exposure.

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

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

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