GBP/USD Short Trade

The British Pound has been in a good rally, or has it? Stepping out to a larger view one would see that a dramatic fall has occurred from the ~$2.1110 level. For the last two years the GPB/USD pair has been consolidating in a contracting triangle. Price is now reaching the upper trend line of that triangle and is in a prime spot to take a short. Since the price is so close to the line a reasonable stop can be set over the line. To the downside, the lower line of the triangle is the first objective and currently sits about $1.4925, so there is ample reward. Further out, if this plays out as intended, price will drop through the bottom of the triangle for a distance equal to the width. Wouldn’t that be nice!

Two charts to view, a daily showing the rise off of the lower line and a 4-hour chart showing these last legs upwards. The first is the daily view. This chart shows the multi-year triangle in progress, along with my view of the waves off of the lower line. As noted on the chart, there is very little strength to this move up, which shows as a lackluster RSI reading. So far, RSI has yet to even break out of the “Bear Zone” of the range. This could, of course, change with a break-out and rally out the top of the triangle.

 
chart

Next up is the 4-hour chart. This one shows the target value, entry point and dead-wrong stop level. The full target level would normally be 100%, or 5=1. That level has already been passed so, 1.618*1 is the next level at $1.6492. That point also coincides with the upper trend line so it is a logical point. Just to be sure to not miss the entry, the level is being pushed down to the 1.382*1 point, or $1.6440. That makes for a potential draw of at least 50pips. 205pips if it blows out and hits the stop at $1.6645. Targets are currently unset but, the bottom line is the first objective. If it moves our way targets will be set at a later date.

 
chart

Well there it is, the next trade in line. Two more are in the works, AUD/USD and EUR/USD. USD/JPY is still in the setup phase that was written about a separate post and EUR/AUD may be getting close to a trade point. The GBP/USD trade may fill overnight. Will find out tomorrow.

The only thing not mentioned was the fact that this pair could blow out the top. All the way back to the $2.1110 level. One quirk about fx pairs is that is seems if a trend is violently interrupted, price will consolidate then violently move back to the origin of the break. Just something to keep in mind

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