The Pound took a beating last Friday and dropped significantly against the dollar on the back of disappointing industrial production and construction data coming out. The cable even fell to a low we had not seen since 2010, which confirms a continuation of the downtrend that started July of last year. As a matter of fact, since Wednesday the 8th (the day the FOMC minutes were released, revealing a June rate hike is still on the table, thereby strengthening the dollar) the cable went into a steep bearish channel on the 4H timeframe and it has not come out of it. The uncertainty surrounding the general elections in May are also –at least temporarily- weighing down the Pound. So the fundamental outlook for this pair is bearish, at least until the elections when we may have a new situation.
On the 4H timeframe we can see PA, contained by a steep bearish channel, broke out of an ascending triangle on Thursday, kept on falling and challenged the low of March 18th. It broke below it and closed below it (so we do not have a double bottom here), then popped back up only to close slightly below it again. With the notorious weekend gap in mind, there’s no telling what price might do next, so I have two possible trades on my watchlist to enter the bearish trend and will only enter a trade after I see the price confirms either one of them.
Scenario 1:
Price gaps down, below the low of March 18th, retraces back into it for a test of its resistance and then continues its fall until it runs into the bearish trendline that has been tested 3 times this year and should provide strong support. I would enter short after the test of resistance, when I see a convincing reversal. SL would go above resistance. TP1 = traderisk and TP2 = bearish trendline (since PA always responds strongly to it). There would be 150+ pips to be made.
Scenario 2:
Price gaps up, above the low of March 18th, retraces back into it for a test of its support and then continues its to move up for a retest of 1.4742 which should provide resistance and has a nice confluence with the 382 retracement of the swing low. From there I would enter short. SL would go above resistance. TP1 = low of March 18th and TP2 = daily support at 1.4521. There would be 200+ pips to be made.
On the 4H timeframe we can see PA, contained by a steep bearish channel, broke out of an ascending triangle on Thursday, kept on falling and challenged the low of March 18th. It broke below it and closed below it (so we do not have a double bottom here), then popped back up only to close slightly below it again. With the notorious weekend gap in mind, there’s no telling what price might do next, so I have two possible trades on my watchlist to enter the bearish trend and will only enter a trade after I see the price confirms either one of them.
Scenario 1:
Price gaps down, below the low of March 18th, retraces back into it for a test of its resistance and then continues its fall until it runs into the bearish trendline that has been tested 3 times this year and should provide strong support. I would enter short after the test of resistance, when I see a convincing reversal. SL would go above resistance. TP1 = traderisk and TP2 = bearish trendline (since PA always responds strongly to it). There would be 150+ pips to be made.
Scenario 2:
Price gaps up, above the low of March 18th, retraces back into it for a test of its support and then continues its to move up for a retest of 1.4742 which should provide resistance and has a nice confluence with the 382 retracement of the swing low. From there I would enter short. SL would go above resistance. TP1 = low of March 18th and TP2 = daily support at 1.4521. There would be 200+ pips to be made.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan