GBPUSD: The Cable after a week of Elections, Rallies and Spikes
One of the highlights of last week was the UK general election. The cable remained remarkably resilient and even rallied over 200 pips prior to the elections, as a result of the dollar weakening and the UK services pmi coming in better than expected. On the day of the elections itself, it dropped almost 100 pips, due to the uncertainty of there potentially being no clear majority in parliament, but the pair never really sold off and kept trading within a bullish parallel channel and a nice triangle before the elections results came in.
When the exit poll was released, it showed the Conservatives had a likely win and the cable broke out of the triangle to spike 190 pips within a minute. When subsequently the results of the marginal seats (key to determine the final outcome of the race) proved to be in favour of the Conservatives, the pair rallied over the course of a few hours and briefly popped above the 1.55 handle, before retracing 50% of the move. The Conservative victory eliminated political uncertainty and is viewed by the market as favourable for the UK economy. Thursday night provided excellent opportunities for scalping the election results, riding rallies and fading spikes.
On Friday the NFP came in without much deviation, which was good, but it failed to provide a clear direction for the Dollar Index as uncertainty over the Fed rate hikes remains (helped by a small miss on average earnings) and the cable ended the week with a net gain of 300 pips. Fundamentally, the USD remains the strongest currency in the longer term, but the market reacts to any data and US data has not been decisively good lately. The GPB is one of the strongest currencies (especially now that the current government can stay in power) and the BoE is second in line to raise rates behind the FED.
On the technical side, we can see the contour of a potential Crab pattern (a 5-point extension structure) on the 4H chart. The exit poll spike moved the price decisively passed the B point and it found support around the 1.54 handle, where the X point of the pattern lies. The X point of any harmonic pattern is always controversial and ideally it would be a major high or low, but it can also be a top or bottom within a larger swing, so this X fits my rules since it’s the 50% retracement of the move down that preceded it.
This support at 1.54 could help the pair move up, towards the D point of the pattern, which has a nice confluence with both the upper channel line and a daily resistance level. If this pair follows the script, price will reverse there. Reversals for Crab patterns can be dramatic and extreme price action as it approaches its completion point is not uncommon. There are some news events on Monday, though its very probable there will be no change to the interest rate, neither a rate statement and this could be a non-event but regardless we will have another interesting trading week for the Cable.
SL goes 45 pips behind the daily resistance level. TP1 = 382 retracement of AD and TP2 = 618 retracement of AD. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 305 pips to be made (if this pair follows the script) and the trade has an excellent reward – risk ratio of 7.7!
Please like this idea if you think its useful and / or leave a comment below.
When the exit poll was released, it showed the Conservatives had a likely win and the cable broke out of the triangle to spike 190 pips within a minute. When subsequently the results of the marginal seats (key to determine the final outcome of the race) proved to be in favour of the Conservatives, the pair rallied over the course of a few hours and briefly popped above the 1.55 handle, before retracing 50% of the move. The Conservative victory eliminated political uncertainty and is viewed by the market as favourable for the UK economy. Thursday night provided excellent opportunities for scalping the election results, riding rallies and fading spikes.
On Friday the NFP came in without much deviation, which was good, but it failed to provide a clear direction for the Dollar Index as uncertainty over the Fed rate hikes remains (helped by a small miss on average earnings) and the cable ended the week with a net gain of 300 pips. Fundamentally, the USD remains the strongest currency in the longer term, but the market reacts to any data and US data has not been decisively good lately. The GPB is one of the strongest currencies (especially now that the current government can stay in power) and the BoE is second in line to raise rates behind the FED.
On the technical side, we can see the contour of a potential Crab pattern (a 5-point extension structure) on the 4H chart. The exit poll spike moved the price decisively passed the B point and it found support around the 1.54 handle, where the X point of the pattern lies. The X point of any harmonic pattern is always controversial and ideally it would be a major high or low, but it can also be a top or bottom within a larger swing, so this X fits my rules since it’s the 50% retracement of the move down that preceded it.
This support at 1.54 could help the pair move up, towards the D point of the pattern, which has a nice confluence with both the upper channel line and a daily resistance level. If this pair follows the script, price will reverse there. Reversals for Crab patterns can be dramatic and extreme price action as it approaches its completion point is not uncommon. There are some news events on Monday, though its very probable there will be no change to the interest rate, neither a rate statement and this could be a non-event but regardless we will have another interesting trading week for the Cable.
SL goes 45 pips behind the daily resistance level. TP1 = 382 retracement of AD and TP2 = 618 retracement of AD. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 305 pips to be made (if this pair follows the script) and the trade has an excellent reward – risk ratio of 7.7!
Please like this idea if you think its useful and / or leave a comment below.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan