The Great British Pound is Not too Great at the Moment

Posted Monday, January 9, 2017 by
Eric Furstenberg • 3 min read

Hello, fellow traders! I hope you’re all experiencing a profitable week so far.  


The FX market kicked off the week with a bang. This is especially true for the GBP/USD, which gapped lower and also traded lower throughout the day. The current price is about 118 pips below Friday’s close.


GBP/USD Daily Chart


It is no secret that the pound is one of the weakest major currencies at the moment. I played the pound on the short side today, of which most of the trades were intraday. I sold GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD, and bought EUR/GBP. I’m still holding on to two positions, but the others have hit their targets already. Trading isn’t always so easy, but when the easy money comes by, we need to seize the opportunity.


So we know that the pound is taking a beating at the moment. This weakness is likely to continue over the next week or so, even if we encounter a retracement of some sort. Of course, the US Dollar is not necessarily the best currency to trade against the pound at the moment. The Australian Dollar was considerably stronger than the US Dollar today. Many other currencies also traded higher against the Buck today, including the Euro and the Japanese Yen.


Let’s look at a 4-hour chart of the GBP/USD:


GBP/USD 4-Hour Chart


This decline has been really aggressive indeed. Just look at the sharp angle of this last leg lower. I don’t like chasing the price of an instrument when it’s already in an oversold or overbought condition. It’s normally better to wait for a retracement to the 20-exponential moving average, for example. You can also use role reversal levels, or swing levels to look for good levels to sell at.


An example of a role reversal level is when the exchange rate breaks through a former support zone, after which this same zone turns into a zone of resistance.


On the chart above, you can see that the red circle indicates an area where we could possibly find good opportunities to sell the GBP/USD.


USD/CAD – Where Will this Crazy Pair Go?


USD/CAD Daily Chart


As I mentioned in a previous article, I have a sneaky suspicion that this pair might get caught up in some kind of ranging behavior soon. The last three daily candles show the signs of soft support stepping in. Let me zoom into this chart a bit so you can look at these candles in more detail:


USD/CAD Daily Chart


As you can see, all three of these candles have downward wicks which tell us that there were some buyers defending this zone. I call this particular support area on this chart a ‘soft support zone’ because these candles are relatively small, and perhaps this isn’t the most perfect setup to use for long entries. We could play it right, however, if we wait for a proper entry signal, like the break of the last daily candle’s high, or something like this.


Perhaps the pair will build a solid base of support in this area over the next few days, which could strengthen the case for a bullish play, and offer a safer environment for prospective buyers to trade in.


AUD/USD – The Australian Dollar is NOT Backing Off


The Australian Dollar has been a tough opponent over the last few days. It reminds me of the lizards that inhabit the river where I stay (in Pretoria, South Africa). Sometimes the big dogs of the area try to hunt down these tough guys, only to get beaten up in the end.


Let’s look at a daily chart of the pair:


AUD/USD Daily Chart


If you read my previous article, you might remember that I warned against entering short on this pair too early. We haven’t encountered a proper sell signal yet, but perhaps there might appear one in the days to come.


I would like to see something like a long upward wick appear on a daily chart, or perhaps a bearish engulfing bar.


It seems like the market might not show a lot of respect to this particular role reversal level, and that perhaps a deeper than expected correction may be on the cards in the next few days. I suppose this may also depend on the Australian retail sales number which will be released in a few hours at 00:30 GMT (on Tuesday). This is something that can move the Aussie, so beware of the risks (and possible reward) here.

Make all the money you can, good luck trading guys!

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