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
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 PRO Fib.The.Gentleman
2 years ago
Sure, no problem. Let me know what you find on that pair.
Fib.The.Gentleman PRO JasperForex
2 years ago

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 PRO Fib.The.Gentleman
2 years ago
Thanks for this! Some nice confluence I see. It could work out.
2 years ago
Thanks for the chart...
+1 Reply
JasperForex PRO mbdr
2 years ago
You are welcome.
JasperForex PRO
2 years ago
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.
Ideas Scripts Chart
United States
United Kingdom
Home Stock Screener Economic Calendar How It Works Chart Features House Rules Moderators For the WEB Widgets Stock Charting Library Priority Support Feature Request Blog & News FAQ Help & Wiki Twitter
Private Messages Chat Ideas Published Followers Following Priority Support Public Profile Profile Settings Account and Billing Sign Out