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I’m going to get started today on the Greater British Pound versus the US Dollar [GBPUSD]. Starting here on the Daily Chart, it’s obvious that this currency pair has been in an uptrend for quite a long time. We go all the way back to July, bottom left-hand side of the chart, of 2013, so just about a year we have been in an uptrend for this pair.
Now, throughout the life of the trend of course, we’ve seen times when it went into congestion, some sideways movement or even some temporary downward moves, but overall the price has been in an uptrend, and really that has not changed for this pair. We’ve seen it in congestion over the recent days, but again, the trend basically has not changed yet.
We would have to see a change of the pattern of the trend. The easiest way to define this is within the uptrend, we have higher highs and higher lows. So, to see a change in the pattern of the trend, we would look for lower highs and lower lows, and we don’t see that. We only see currently in a little period of congestion.
So let’s go ahead and zoom in a little bit here on the chart so we could see that period of congestion. I’m just going to zoom it in one time. Still on the Daily Chart, and you could see up here. We’re looking, today included, nine days; we can probably even call this candle underneath the red line here ten days that we’ve been in a period of congestion or ranging here for the GBPUSD. No real change or breakout over the past nine or ten days. So, we need to define the limits of the congestion, the limits of the support and resistance here so we know when our best opportunities to trade.
Now, if we’re going to look for a buy in the direction of the trend within the period of congestion, it would be more suited towards the bottom. And I’ve put a red box here to help us define the limits of the congestion, the top and the bottom. The bottom of that red box and the bottom of our limit of congestion would be right at 1.7100. So, that’s easy to remember. That double-zero level. 1.7100 is the bottom of our area of congestion. As close as possible as you can get to that, if you’re considering a buy for the GBPUSD, that would be where you would want to do it. Close as possible to 1.7100. It limits the amount of risk. Your stop losses become much lower, and then you look for it to rally back to the top, like it has been doing for ten days.
Now, there’s of course no guarantees that it’s going to continue to do that. It could eventually break to the bottom side and go lower, but at least if you’re looking for a low risk, high reward scenario for a buy, that becomes one of those intraday opportunities there into 1.7100. Now, if you’re considering the other side and you’re looking for reversal and a selling opportunity and a breakout in that direction, then there’s really only two things that you’re looking for. A rally back to resistance, back to the pink-shaded area at the top of the chart, the top of that red box. That, again, gives you a lower risk, smaller stop opportunity to sell, and a higher potential reward because then, as it falls back down towards 1.7100, you protect profit and look for the breakout of the congestion.
The only real other opportunity – either you’re buying at the bottom of the red box, selling at the top of the red box. The only other really opportunities that you see here for the GBPUSD are a breakout of congestion. Either to the top side, above 1.7165, and you look for the continuation of the uptrend, or underneath 1.7100, you look for a continuation lower or a change of the trending pattern. And again, I don’t see any real solid evidence or clues to a change of the trend pattern. Just the fact that we’re in a period of congestion.
If you take a look back here, not too far. We just go back here between the blue and the orange-shaded area. It was a period of congestion. Seven days. Eventually it broke to the top side and made a new high. So, just taking that as evidence right here, if it breaks to the top of the pink zone, of course we’ll look for a new high to be made for the GBPUSD.
Today the Forex Black Book trend bar is dark green. It was dark green late last week also, so it’s been green, which signifies of course that it’s been in an uptrend. That’s not too hard to see. It is dark green, showing shorter-term disagreement or confusion in the market. If it was bright green, there would be all agreement to go up. Since it’s dark green, it shows you shorter-term trends are not moving up right now, and that’s not too hard to see with the period of congestion up there, top right-hand side of the chart.
Let’s take all of that information and let’s go ahead and take it down to the 4-Hour Chart here. As we zoom in here on the 4-Hour Chart, you could see the same areas here. The red box that I have drawn on the chart. In fact, I might even take that back a little bit further to the left so we can see how it incorporates these few little candles right here. The red box showing the limits, the upper range, and the bottom of the range here for the GBPUSD. 1.7100 being the bottom.
Clearly it’s attempted a few times. You could see a few candles peeking underneath 1.7100, but no real breakout underneath there. In fact, after the weekend candle, we saw a little bit of a gap higher, so very interesting there that the buyers are trying to fight back, but I would expect that if it breaks underneath here. With a little black arrow, I’ll show you that. If it breaks underneath there, we’ll likely look for a turn back lower. And back lower, at least we’ll go back to this blue-shaded area, which is down into the 1.7050s, 1.7040s, and 1.7030s for the GBPUSD.
So, breaking out underneath, we know it’s likely going lower. Staying above, which I mentioned a few moments ago, above 1.7100, there is potential for it to stay in congestion on an intraday basis. Your lowest risk, highest reward opportunity at the current moment would be for buying there into the 1.7100-level, knowing the risk is that it breaks out underneath there.
On the top side again, there’s that pink-shaded area all the way up here at the top. We know that there’s resistance. Top of the range. We’ve seen that historically over the past ten days. A breakout above looks for it to go higher. I would say this. I do have a little bit of a bias to the sell side at the current moment. I think we’re at the very top of the trend. Remember buy low, sell high. Remember that. So, at the very top of the trend, for an entire year, it’s been an uptrend. We’re at the very top. It’s very difficult to suggest a buy when you’re that high within the trend. You usually would like to see some retracement lower first. I don’t think we’ve gone low enough to say that that’s been a good retracement yet.
It’s just in congestion, but another tool that we use is the bank flow levels, and take a look at the bank flow levels. There’s a cap here. The sellers are fighting back, heavy right here into the pink zone. Take a look at the bank flow levels over the last week. We saw them here into the pink-shaded area. So, clearly the sellers are fighting back, trying to see some reversal out of this currency pair. We only had one day last week where we saw buy levels all the way down here in the orange-shaded area. So, the bank flow levels are pointing to the sell side. We have a dark green trend bar showing some confusion in the trends, so a breakout underneath 1.7100, we look for it to go at least have some retracement back down to the blue-shaded area, maybe even back to the trend line. The longer-term daily trend line sits all the way down there into the 1.6900s, down there at the bottom of the chart, the blue trend line.
So, quite a long ways down is a possibility if it does take a fall back down, but for the day today, we really just need to see this week a breakout of this congestion for the GBPUSD.
