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Short-term Trading Idea FX GBPUSD – Bear Speculation: Breaking the 1.4800 Limit

Trading opportunities for currency pair: the pound/dollar rate broke its limit last week, taking its roots from March and July 2013 minimums. The CCI indicator entered the trend zone lower than 100. Before 24th May this year, one can expect the pound to fall to 1.4345 and to 1.3705 by the middle of August.

In my last idea for trading the British pound from the 9th February, I expected the GBP/USD to fall to 1.4950 and 1.4816. Due to the break in the trend line, the scenario became invalid and only became relevant when the price returned below the line. The targets were met. The price at closing on Friday was 1.4739 (minimum 1.4698).

The pound started to lose its position to the US dollar on 6th March after the release of American labor market statistics. The level of unemployment fell and the amount of new jobs created exceeded market expectations. The pound’s daily losses on the back of this news amounted to 2 figures (200 points). It stopped falling at 1.5031.

On 9th and 10th March the British pound was trading with the dollar in a sideways trend. High demand for the pound in its cross pairs allowed it to stay above 1.5030. On Wednesday, 11th March, due to aggressive euro sales and a growth throughout the market for the dollar, the pound/dollar passed the 1.5022 level and renewed to the 1.4892 mark.

On Thursday, 11th March, the British pound was under pressure after the Bank of England’s Mark Carney made an announcement. He made clear that there’s no rush to raise the base rate at the moment. The pound/dollar crumbled from its 1.5026 maximum by 177 points to 1.4849. On Friday traders and investors continued to buy American dollars. GBP/USD tested the 1.47 level. It closed for the week at the 1.4739 mark.

Now we need to speak about why I chose this currency pair. To define the mood of the players in the coming two-three weeks, it’s worth going up to a weekly or even a monthly time frame. My markings are done on a weekly graph.

What do we see? In the week just gone there was a break in the limit from the March and July 2013 minimum. The CCI indicator entered the trend zone lower than 100. Now we build ourselves a channel: a line through the maximums from August 2009 (1.7042) and July 2014 (1.7190) and a parallel line at May 2010’s minimum (1.4227). The lower line of the channel projects a 1.4345 target for us. It’ll be achieved by 24th May, 2015.

If we affix the parallel line at the 1.3503 minimum from January 2009, the 1.3705 level can be considered as a second target. The second target will be achieved if the euro reaches parity with the dollar.

On Monday I always look at Friday’s movements; the first test of the 2013 limit will be false. Keep your finger on the pulse. Be careful with your purchases. You absolutely need to use protective stops, otherwise it’ll be morally difficult to outlast the drawdown.

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