GBP/USD ?? Potential Short-Term Relief Rally at 1.33

3 min read
HubertM

HubertM

Author

Dear Traders,

The GBP/USD is most likely about to approach its first bigger pause within its new downtrend. Today’s analysis will take a look at the most recent price-action and highlight potential counter-trend trade setups.

Heading into Support Zone

The Cable appears to have finished a complex sideways correction within Wave 4 of the new downtrend over the last few trading days. Price began to break lower earlier today, which was probably the final sell opportunity for the time being, as price approaches a confluence zone of support during wave 5. Here is what I see:

  • 1st Major horizontal support zone since the April high is between 1.33 and 1.3336
  • Even though Wave 3 overshot a potential trend channel, we can nevertheless very often get an accurate forecast for the end of Wave 5 if waves 2, 4 and 1 are used as the main anchor points. In this situation it coincides with the support zone around 1.33 – 1.335 (see blue channel lines)
  • The -27.2% Fibonacci Target relative to Wave 3 also falls into the same support zone, which often acts as a terminal target for wave 5s
  • Momentum indicators of the 4 hour charts have managed to return to the zero line and are beginning to form divergence

Should this support area not hold, the Cable will be vulnerable to an immediate severe sell-off as it would mean that an extended wave 3 is most likely unfolding, which won’t create any significant relief rally.

Counter Trend Trade Setups

A bigger bullish correction should provide short-term counter-trend trade opportunities. Very aggressive traders could consider placing buy limit orders at the support zone of 1.33 – 1.3340 and using a very tight stop loss policy.

A more cautious alternative is to wait for a bullish break of the blue upper channel line and enter buy positions at the retest of the broken channel line.

The first target should be the top of the range that was created during wave 4 (around 1.36). If the upwards move looks like a clear motive wave, we can further expect that another motive wave will follow suit after a bearish B wave is finished, which could be another entry point option for trading wave c of a potential zigzag.

All the best along your trading journey…

Hubert

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