GBP/USD Assessing Reward to Risk After Pullback

dtu_051710_gbpusd1h  

  • 1H: Last week, as the GBP/USD pair tested 1.45, I was preparing for some correction before a break below. However, this week started with a decline of more than 200 pips right through the 1.45 low before the European session even started. During the European session, it was in correction and is now testing 50% retracement level.
  • If the market fails to continue higher than 1.4633, it creates a negative reveral. If the market tops off at the 1.45 it would be tested a resistance. This pullback would confirm the break and a target of 1.38. Refer to Retesting 1.45. However in the shorter term, a swing is projected to 1.41 first.

dtu_051710_gbpusd15rr

  • 15min: The 15-min time-frame shows that the correction remains in a bearish context as the RSI could not break and sustain above 60. We see price action also testing a rising support. A break will likely lead to confirmation of our bearish scenario - swing projection in the short-term to 1.41.
  • The break of the recent common RSI low near 50 would also serve as a confirmation.
  • The Reward to Risk ratio can be obtained by establishing a protective stop level. This can be for example 2 ATRs above the 1.4470 high. The ATR is 30, so 2xATR = 60. 60+1.4470 = 1.4530.
  • In this rough estimate, if the trigger closed near 1.4385, we would have an R/R of about 1.96:1.

Fan Yang  Currency Analyst Commodity Trading Advisor