Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
For the past two weeks in our weekly analysis, I've been talking about the potential head and shoulders pattern on GBPUSD. Well, the time has come for that pattern to be triggered.
GBPUSD is testing the neckline today as the support here is facing heavy pressures. The price spiked higher today in early morning trading on the Bank of England announcement, but the quick reversal of the gains is indicative of strong bearish sentiment and increases the chances that the neckline support will break here.
Head & Shoulders Neckline On The Brink Of Breaking As Bearish Pressures Mount
The situation on the charts is developing rapidly, and although some trendlines suggest that the neckline has broken, the price needs to move a tad lower to confirm this bearish breakout fully.
It's just the fact that the art of drawing necklines and trendlines comes with a degree of subjectivity, so not all traders get the same trendlines on each occasion. Nonetheless, if GBPUSD moves below the April 21 low of 1.2246, then the neckline will definitely be broken, and the bearish H&S pattern will be ON.
The high established today, post the BOE announcement, is now a pivotal technical level that is likely to serve as the decisive point for this bearish head and shoulders setup. The price should not go above this high of 1.2417 for the head and shoulders to remain valid. Thus, it can also be used as a prudent level for a stop loss.
We project the height of the head to get the target of the pattern. In this case, it is at 1.1950 area.
The 4H and 1H charts are worth watching also
The lower timeframes are providing additional insight into the GBPUSD price action behavior right now. For instance, we can see how the bounce at the neckline we discuss on the daily chart occurs at the support trendline of a bearish trend channel on the 1-hour chart.
Watching this bearish channel can provide excellent opportunities to sell toward its resistance trendline (currently around 1.2350) - giving a very attractive risk-reward ratio.
For example, you can sell based on this 1-hour channel, and then transform the trade for the large head & shoulders pattern to be triggered on the daily chart. In such a case, a very tight stop can be placed.
Keep in mind that this bearish channel should not be broken if the daily head and shoulders pattern is going to work out well.
As discussed above, we aim to enter the market with a tight stop and the maximum potential for profit. To achieve that, aim to trade based on both the daily and 1-hour charts described above.
Entry:
- Wait for a pullback higher toward the resistance trendline of the 1-hour bearish channel at 1.2350.
- Sell around 1.2350 on intraday bearish patterns or signals.
- Once the 1.2246 low is taken out, the daily head & shoulders pattern will be triggered as well. Then the target will be on toward 1.1950.
Stop loss:
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Place the stop just above that entry pattern, above 1.2350.
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Remember, the 1.2417 high should not be exceeded. So, the stop can be placed slightly above this level for greater breathing room.
Targets:
- 1.1950 is the main target based on the head & shoulders;
- Alternatively, partial profits can be taken based on the 1-hour channel at its support trendline;
- The first such target would likely be around the 1.22 level (though monitor this actively as the channel is falling steeply).
The Fundamentals Remain A Headwind For Pound Sterling
The upside in GBPUSD should remain capped by coronavirus risks and Brexit risks.
- Today, the Bank of England projected the UK would see the largest recession in Europe due to the coronavirus crisis. They said that QE would likely be expanded in June, and that is weighing on sterling.
- Brexit deadlines are nearing, and the risks for negative developments are rising. Talks with the EU for extending the Brexit deadline should begin next Monday, but so far, both sides have kept firmly to their stance. More importantly, the UK government continues to hold that they have no intention to extend the deadline. Thus, the risks for a newsflow on Brexit starting from next week are quite high, and this will
add fuel to the already burning fire - pushing GBP lower.
It's best to sell GBPUSD on a combination of a technical breakdown of the head and shoulders pattern and fundamental bearish news on the above factors. This would make the trade a high probability one.
The US reports the unemployment and Non-Farm Payrolls tomorrow. Though the results are largely priced into markets already, a positive Dollar reaction could be just enough to crack the support on GBPUSD. This may also trigger the head and shoulders pattern and ignite the potential bearish move here.
Trade signals from the past week
- April 29 - Short USDJPY from 106.75 (in progress), moved stop to slightly above 107.00
- April 30 - Short NZDUSD - not triggered as the market reversed before reaching our sell area
TOTAL: 0 pips in the past week
TOTAL: +2740 pips profit since October 1, 2018
If you have any questions or feedback, don't hesitate to reply to this email.
Thank you!
High Risk Warning: Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
Any opinions, news, research, predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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