Hi again everyone!
It’s Monday so I’m going to start with a weekly perspective. After the bullish trade we took last week on a retracement (http://blog.fxinstructor.com/cable-about-to-correct-recent-drop/), this week I’m looking at a completely different situation. First, the very fact that the correction last week only managed to touch 1.6670 (38.2 of the previous wave down) & then the bears had the chance to reach down to 1.6435 once again earlier today is significant from a mid-term perspective. This fulfills my first condition for a bear rally mentioned last week in our LTR – bulls’ failure to get out of trouble by re-conquering & holding on to at least 61% of the drop before price hits back last week’s bottom. In other words what doesn’t go up must come down – that’s what I’m expecting to happen this week. Here’s the chart pics & facts:
The W1 chart seems to be turning as 1.6750 rejects the bull run once again forming an interesting bearish candlestick pattern right at the top. The RoC TL is broken for weeks now & the price has already crossed its own TL @1.6450 (needs to stay below to confirm). At the same time the RoC is giving a big bear divergence, all this on the background of a bearish monthly chart. Could the longer-term bear trend be resumed here? This week might be the key to this question…
The daily chart looks interesting as both bearish & some bullish arguments can be developed from the current situation. What is particularly interesting for me are 3 points:
1) the first aggressive trend line was broken @1.6545 – that wouldn’t be relevant if price hadn’t come up again to retest the same TL with failure @1.6615. The same daily candle closes nicely below the D1 20MA which is now a resistance. The 60MA is now again tested (it’s been support for the rally up since March & for now it holds). The previous triple top res. @1.6605 is now capping perfectly a move that is now about to be confirmed as a mere corrective pattern after the 1.7042-1.6390 rally…
2) there are 2 important daily &weekly trend lines & a support level in the 1.6430 – 1.6340 area. This should provide at least bullish reactions if not even a bullish wave but in case this area is easily broken down by the bears the mid-term bear scenario I have in mind will receive a lot of backup. Price action around these levels will be very interesting to observe.
3) The current wave down doesn’t make much sense to me as a W4 of a bull impulse started @1.5984. The move is too well sustained & too deep to be a W4, besides it has no corrective structure at all. On the other hand, if this push is just W1 of a newly emerged bearish impulse then everything could be easily explained in bearish language
Finally, the H4 picture on my chart is bearish since friday last week. The indicators are down & the short-term TL is broken @1.6540. The MA’s are clearly pointing down, and the H1 chart is bearish since 1.65. Momentum is not yet great, but I see good potential if the bulls don’t step in to correct this move very soon (in the next 2-3 sessions).
Today I’ll only look for shorts, my ideal entries are in the 1.6475-1.6510 area, stops @1.6590. In case no upper correction comes before London open or immediately after, I’ll look to short small lots with much smaller stops (M15-M5 setups). Longs for me become interesting only above 1.66, where a successful defence of the support area @1.6430 – 1.6340 would be confirmed – in that case initial targets are 1.6760 – 1.6800.
Good luck & have a great week!