Will GBP/USD Bears Regain Control?

faithmight

So after remaining rangebound all last week, $GBPUSD broke out of the channel to the downside during Friday’s trading session.  $GBPUSD opens the week with a continuation of Friday’s bearish price action back to 1.50. Despite being bullish the past 4 weeks, with cable back at 1.50 I have to question the short term direction now of the currency pair. Will bulls continue to prevail or have the bears returned?

The Case For Bears

daily chart of GBPUSD on July 11 2010

  1. Strong resistance at the 1.5250 large quarter point with the highs last week all remaining below the level
  2. A failed second bullish wave on the daily chart that resulted in the a textbook rectangular channel consolidation pattern that lasted all last week

hourly chart of GBPUSD on July 11 2010

  1. The break of said channel to the downside holding as last week closed at 1.5063, well below the channel lows at 1.5078
  2. Opening the this new trading week to continue its slide down to 1.50
  3. Attempts by price to rally above the 1.5063 close found resistance at 1.5078 (the bottom of the channel)

weekly chart of GBPUSD on July 11 2010

  1. A failed spike high to 1.5240 marking the 38.2% Fibonacci level on the weekly chart
  2. Long term bear trend
  3. A weak UK economy with an increasing trade deficit and falling inflation and threats of credit downgrades
  4. A weak US economy that is still in better shape than its British counterpart just because the US ecoomy is simpy bigger and still drawing investment dollars. Plus, the US credit rating still remains unthreatened.
  5. Renewed whispers that the Bank of England may increase quantitative easing because of the softening economy

The Case For Bulls

  1. Support at 1.50, the 61.8% Fibonacci level on the daily chart above
  2. ST bull trend on daily chart

Key Price Action This Week

Several things I’m watching for confirmation that the downtrend has, indeed, resumed are:

  1. A sustained break below 1.5000, the 61.8% Fibonacci level shown as the bottom border of the red shaded area on the daily chart above. Otherwise, expect price to rally back towards 1.5250.
  2. On a price rally above 1.50, price behavior at the Fibonacci levels on the  hourly chart (and an updated daily chart)
  3. Resistance at former support on last week’s channel at 1.5087 on any price moves to the upside
  4. A sustained break below 1.4985 where the 100SMA hits on the daily chart
  5. Price to continue down to 1.4925.

Mind the calendar (UK GDP and FOMC minutes are the biggies this week) and your timeframes. Trade what you see, not what I think.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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