GBPUSD: a Bullish Butterfly in a Bearish Channel

FX:GBPUSD   British Pound / U.S. Dollar
The BoE will announce their interest rate decision on Thursday but a hike is not expected for now, with inflation well below its target and the committee standing at 9-0 on a “no hike”. The FED on the other hand stated last week that the timeline of any rate increase would depend on economic data. This was widely seen as somewhat hawkish and a rate hike by the FED is now expected around the summer. The interest rate differential will continue to create selling pressure here, so even though the GBP is not considered a weak currency, I am bearish on this pair.

On the technical side, it has been ranging in a precise 290 pip wide bearish parallel channel on the hourly for the last 28 days. We can now see the contour of a 5-point extension structure taking shape: a bullish Butterfly pattern. The price did pass the B point and then retraced back up, but the hidden bearish RSI divergence , normally found during retracements in a downtrend, indicates this butterfly might be heading for completion. With that it became a trade candidate and earned a place on my watchlist. I defined the potential reversal zone (PRZ) for this Butterfly pattern , by charting the projection of three harmonic levels. I: the 1272 expansion of XA, II: an AB = CD pattern and III: the 2618 BC             expansion. This defines a clear 28 pips wide zone, represented by the orange lines in the chart.

Should price action test the PRZ, stabilise and reverse convincingly, I would enter long in spite of the bearish trend . I am simply playing a pattern recognition probability game and harmonics are a high probability reason to enter a trade. There is a 4H support zone from 2013 near this area, increasing the edge of a reversal in case of completion of the pattern. SL goes 10 pips behind the next support level (which is daily support). TP1 = 382 retracement of AD and TP2 = 618 retracement of AD.

There are 215 pips to be gained and the trade has a reward – risk ratio of 2.8!

UPDATE: Price action for this trade candidate did not test the PRZ and never gave an entry signal so I did not enter. On to the next trade.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
UPDATE: Price action for this trade candidate did not test the PRZ and never gave an entry signal so I did not enter. On to the next trade.
Thanks for the chart...
+1 Reply
You are welcome.
Thanks for that Post Buddy! Ill check that Pair right now, and lets see what will find out :)

Fibonacci may be with you!!
+1 Reply
JasperForex Fib.The.Gentleman
Sure, no problem. Let me know what you find on that pair.

Thats what i got :)

I highlighted for you the red dotted Trendlines... i like these ones being broken and retest over and over
2 times downside touches...2 times upper touches...
PLUS your Buy will come aline with the 4h Channel
PLUS we got a fibonacci extenstion of the prior Move.

Could work out nicely :)
+1 Reply
JasperForex Fib.The.Gentleman
Thanks for this! Some nice confluence I see. It could work out.
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