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I’m going to begin the day today on the Greater British Pound versus the US Dollar [GBPUSD]. Starting on the Daily Chart, we could see, for quite some time, this currency pair has been in a uptrend. We start off all the way down at the bottom left-hand corner of the chart. Back into July of 2013, we began the uptrend. Higher highs and higher lows define the trend, and the blue trend line is a visual tool that we use to help us identify that trend.
I also have a shorter trend line here, coming from a little shorter leg of the trend, starting here in November of 2013, connecting actually with the same low that the blue trend line connects with. And both of these trend lines connect to the low prior to the most recent highest high that we’ve seen on the chart.
During the life of this uptrend, of course we’ve identified three distinct areas of channeling or ranging that this pair has gone into for a period of time, before breaking out in the direction of the trend. We identified the first orange block on the left-hand side, where it went into a pretty wide range, capping out into the mid to upper-1.6200s, bottoming out down into the 1.5900-level.
Then eventually, here into November, we broke out above that first range. Went into another shorter range, where we’ve bottomed out this time into the mid to upper-1.6200s, and capping out at the top of that range – the green-shaded area at the top of that orange box – into the mid to upper-1.6500s. And then eventually, over time, here into February, we finally saw a breakout above that range, above the 1.6500s, pushing all the way back up to the highest high, towards 1.6800.
And now, once again, we’ve started to develop another range up here at the top right-hand side of the chart. It’s a little bit smaller than the previous two ranges, but nonetheless still a range that we’re topping out as resistance, again, underneath 1.6800 and bottoming out right around the 1.6600. About a 200-pip zone between these two green-shaded areas highlighted in orange.
Let’s go ahead and zoom it in here on the Daily Chart a little bit and we can see that range there a little bit tighter. Within that range, between 1.6600 and 1.6800, I have two other areas identified as support and resistance. That’s the yellow-shaded area that we see here, basically capping out into the mid to low-1.6700s. The purple-shaded area bottoming out here into the mid-1.6600s, around 1.6645, 1.6650 area into the purple-shaded area.
And that’s where we’ve been for the past several days. We go all the way back here. We touch the highest high. We started falling. We ranged between there for a period of time. Touched the bottom into 1.6600. And now, since touching that bottom at 1.6600 several days ago, we’re now holding between the purple and the yellow-shaded area. What we’re seeing here within the wider channel or wider range is a contraction of lower highs and higher lows. So, to define that, what I’m going to do is draw a trend line here at the top, and we could see lower highs. Remember: an uptrend has higher highs and higher lows. A downtrend has lower highs and lower lows. But in here, in this scenario within the range, we’re seeing a contraction of lower highs and higher lows.
And that’s defined in two ways. First off, the two black trend lines I’ve just drawn on here. Kind of a triangle pattern if you want to look at it like that, or you could see the horizontal resistance into the yellow zone and horizontal support into the purple-shaded area. All in all, we’re looking for opportunities within here. Now, you could be buying at the bottom. Buying into the purple zone in the direction of the overall long-term trend. Let’s go ahead and put an arrow there. That becomes an opportunity. Buying into the purple-shaded area. The bottom of the triangle, looking for a breakout of the yellow-shaded area and a continuation of the uptrend, challenging back into the 1.6800-level or higher. Those are your buying opportunities. Dip into support or beak of resistance.
Now, that’s not necessarily what’s going to happen. We could again see resistance here into the yellow-shaded area, as we’ve seen over the past several days, and then a breakout to the bottom side of the purple-shaded area and a challenge once again, back down into the 1.6600-level. So, we’re seeing that contraction. At this point, we could trade between there, but we’ll also, over time, watch for a breakout of this triangle pattern.
Let’s go ahead and take it down to the 4-Hour Chart. And as we get down here, we could see all of those same levels that we just identified on the Daily Chart. Just get a little bit of a closer view. There’s the black trend lines, representing somewhat of that triangle pattern that we just established on the Daily Chart. Here’s our arrows here. Selling at the top is a possibility. A breakout or resistance at the top is a possibility, I should say, and then a potential breakout of the 1.6735, 1.6740-level. We likely begin charging back towards the 1.6800-level at the top of the chart.
Let me see if I can drag this yellow-shaded area over a little bit further. And then of course the bottom, where we’ve already seen support today, several hours ago. And any breakout underneath there, we’ll likely look for a continuation back down towards 1.6600 and the green-shaded area down at the bottom. So, if you’re going to trade in the contraction today, here into the yellow-shaded area, I would expect resistance, potential reversal to go back down. Your risk in that scenario is that it breaks above the yellow-shaded area and continues higher to the green zone, back towards 1.6800.
That’s your current opportunity. The yellow-shaded area presents your current setup. Selling: potential for reversal to go back down. Breakout above it continues the bullish pressure. So, if you’re thinking about buying the GBPUSD today, I at least would probably wait for the breakout above 1.6735, above the yellow zone before I would consider a new buy scenario, because historically we’ve seen resistance here already and we’re seeing the top of that contraction pattern here with that triangle.
So, if you’re thinking about buying, wait for the breakout above or a dip back to support into the purple-shaded area just underneath it. If you’re thinking about selling, you’re approaching that area between the 1.6700, 1.6735, where it becomes attractive for any sellers that might be in the market, knowing that your risk is we could eventually break out in the direction of the longer-term trend, the bullish trend, and a turn back towards 1.6800.
Over the past several days, last week really and the past two weeks, we’ve seen the bank flow levels capping out here into the yellow-shaded area, into the green-shaded area, providing it a very difficult time, showing us resistance and a difficult time for the buyers to drive this back higher in the direction of the trend. We didn’t get our bank flow levels yesterday, but if they do show up today, I would expect them to be right here at the top of the yellow-shaded area, similar to last week. You see last week’s bank flow levels sitting here into the yellow-shaded area. I would expect today’s and I would’ve expected yesterday’s to be right here into the yellow-shaded area.
So, continue to watch for that. Any challenge of the bank flow levels becomes a selling opportunity obviously. A breakout above those, we’ll expect a dramatic continuation of the uptrend for the GBPUSD today.
