andrewunknown

GBP/USD: Pre-BoE Deliberation

FX:GBPUSD   British Pound/U.S. Dollar
166 0 1
Cable's reaction against its Bearish Butterfly PRZ is an excellent example of the role of the PRZ as a consolidation/staging area and demand sink. In this case, Cable has more than validated the 1.54 PRZ's relevance by subjecting it to multiple tests. As a result, a 1.53-1.54 congestion range has emerged from which a) a breakout trade above 1.54 can set up, b) a short into an Eve-Eve Double Top (which is tentatively underway) on a break held below 1.53 can be taken or c) swing setups where Cable remains in the 1.53-1.54 range can be taken.

Along the lines of scenario B, when the PRZ proves to be durable like this one, demand is whittled away and the likelihood of a reversal increases. Thursday's BoE decision will likely be decisive for this pattern, one way or another.

PRZs, no matter how symmetrical the pattern's measurements, do not always produce reversals. Where they don't, this type of range activity can often be observed. You could contend there is no such thing as a "busted" harmonic pattern because they have multiple trading applications beyond producing simple reversals. The key is to draw well, delineate levels of interest, look for validation of those levels and have a plan for continuation and range trades as well as reversals.
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