Note: We didn’t send the regular weekly analysis this Monday as I was away from work due to sickness (it was a nasty stomach flu). So, instead of the weekly Fx, I’m preparing a special edition of the newsletter that will be sent to you tomorrow. We’ll discuss some of the longer-term factors in the Fx market and what lies ahead for the major pairs. So, stay tuned for that email tomorrow.

 

We’ll resume publishing our weekly Fx analysis updates as normal from next Monday (June 6).

 

 

Last week we noted that it is time to think about shorting EURUSD again as the pair was nearing a key resistance zone. And the same can be said about GBPUSD, which this week has also tested its key resistance and got rejected there.

 

We saw GBPUSD reaching a high this Monday, then it fell and broke below a key support zone (1.2550). It is now retesting this broken support. From the price action, it looks like GBPUSD can continue to fall for at least another 100-200 pips, putting our first bearish target somewhere in the 1.23 - 1.24 area.

 

Most importantly, the longer-term factors remain bearish. The hawkish Fed and more robust US economy compared to a slowing UK economy and now dovish-leaning Bank of England are likely to remain firmly bearish factors for GBPUSD. Thus, downside pressures on GBPUSD are likely to stay. 1.20 remains a real possibility for the coming months, and depending on specific circumstances at a given moment, it could happen even sooner. 

 

While the very near-term picture is less clear - there are signs that the consolidation can last some more or extend - still, it makes sense to look for short opportunities because the predominant trend and the fundamentals are bearish. And given that GBPUSD has now reached an important resistance zone, we are considering a potential short trade idea with a relatively tight stop and not too distant targets. 

 

 

The short-term technicals are showing a bearish trade setup unfolding at the moment (see chart below). GBPUSD plunged yesterday on the strengthening dollar, then started recovering into today’s session when it reached and retested that key 1.2550 technical zone. It got rejected there today, signalling that this new bearish move that started yesterday may have legs.

 

If GBPUSD slips below 1.25 again, then it will likely extend the fall further and also break below yesterday’s lows around 1.2450. This is the preferable scenario for our trade setup and will give a nice opportunity to go short from around current levels (1.2540) and target levels toward 1.24 and 1.23. The trade plan section below explains the specific entry, stop loss and target levels.

 

 

Entry:

• GBPUSD is still playing with this 1.2550 resistance zone (former support); Look for more convincing bearish signals here on the hourly chart and enter short.
• The first attempt was rejected here today; if this second attempt is rejected too, it will be some confirmation that the resistance here is holding. 
• On the other hand, if GBPUSD pushes further higher from here, this trade setup will simply be cancelled.

Stop loss:

• Look to place a relatively tight stop (not higher than 1.2590); Above your entry bearish pattern would be the best. 
• This 1.2550 resistance is the line in the sand, and the stop should not be too far from it.

Targets:

• 1st - 1.24
• 2nd - 1.2350
• 3re - 1.23

 

 

 

Best Regards,
Philip

FX Trading Revolution
w: www.fxtradingrevolution.com 

e: philip@fxtradingrevolution.com

 

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