GBPUSD: Quintuple Top on the Cable

FX:GBPUSD   British Pound / U.S. Dollar
Last week the dollar weakened prior to FOMC, helping the Cable rise during the first three days of the week. The UK GDP coming out as expected also supported the rise; illustrating the economy is doing well. In the FOMC statement on Wednesday the FED referred to solid job creation and said there will be an increase in interest rates following 'some further' improvement in the labor market. There were however no clues as to the timing of the rate hike. Cable rose again on Friday, after a far below expectations US employment cost index, leading to a dollar sell off. With all the fundamentally bullish impulses of last week, price failed to break above and close above the key resistance at 1.567

On the technical side, the Cable is trading inside an ascending triangle for about three weeks, printing a quintuple top along the way. It dropped 65 pips after the last failed attempt to break this resistance. There is a confluence with this resistance level and the 618 retracement of the swing low that preceded the triangle. We also have clear regular bearish RSI divergence; indicating underlying weakness and possible trend direction change from uptrend to downtrend. If the pair would break below and close below the lower trend line of the triangle, I would go short. More conservative traders could wait for a successful retest of the broken trend line before entering the trade. Monday we have the UK manufacturing pmi coming out, which will no doubt give an impulse to this pair.

The stop would go 30 pips above the flat top. TP1 lies just above the low of the swing low that precedes the triangle. TP2 lies just above the next key support level . See the chart for details. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade towards TP2.

There are +/- 400 pips to be made (depending on where it breaks to the downside) and the trade has a reward – risk ratio of +/-3.0!
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
+1 Reply
JasperForex both_left_hands
I was already short :)
both_left_hands JasperForex
maybe i'm too conservative
+1 Reply
JasperForex both_left_hands
Not necessarily. There is no "best way" to do this, there is always a trade off between risk and reward. But so far so good, I am 120 pips in at the moment and its still going.
What does pips mean?
+1 Reply
The smallest price change that a given exchange rate can make.
Would the TP2 key support be the support level, if the price breaks below the ascending triangle, or does this (lower dotted white) line only represent previous support levels?
+1 Reply
I plotted that line based on previous structure levels ("look left, structure leaves clues"). There are more levels along the way which I did not draw, to not clutter the chart (and each of these levels can cause a reaction in the price action like a slow down of momentum or a retracement), but the level at 1.518 would be where I would take profit on my last position.
Luke00 JasperForex
Thanks for clearing that up. Also, and slightly off topic, but are ascending triangle patterns always a short position indicator, and likewise are descending triangles always a long position indicator? Thanks.
+1 Reply
I personally see ascending triangles as bilateral patterns, meaning they can break to either side and I look for situational confluence to reach a directional bias and piece together a full trade setup. The pattern simply helps me isolate / highlight the main trend lines that contain the price action. Mind you, different traders will answer this question differently; it all depends on the context, strategy and trading plan.
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