ICmarkets
Long

Harmonic P.A seen on cable this morning traders...

FX:GBPUSD   British Pound/U.S. Dollar
143 0 1
Weekly gain/loss: -159 pips
Weekly closing price: 1.3063
Weekly open price: 1.3075

Weekly view: As can be seen from the weekly chart, the recently closed weekly candle chalked up a relatively strong-looking bearish engulfing formation, which has smothered two prior weekly candles! By and of itself, this could suggest that cable may plunge lower this week. As far as weekly structure is concerned, however, we can see that there’s a weekly resistance area seen at 1.3501-1.3804, while to the downside there’s little support seen to the left of current price until the market reaches the 1.20 region.

Daily view: Looking down to the daily chart , the candles are currently seen loitering mid-range between a daily supply zone at 1.3533-1.3426 and a daily demand barrier at 1.2789-1.2928. With the trend predominantly pointing south, and considering the fact that the daily supply is glued to the underside of the aforementioned weekly resistance area , we hold the opinion that a break of the demand base is more likely to be seen.

H4 view: Stronger than expected US employment figures saw the GBP plummet against its US counterpart on Friday, forcing price to wipe out the H4 demand at 1.3064-1.3109 and reach lows of 1.3020, before a modest end-of-week correction took form.

Direction for the week: Initial action will more than likely continue to trade lower down to the aforementioned daily demand. From here we could either see an immediate bounce, a phase of consolidation or a decisive push lower.

Direction for today: In view of price ending the week retesting a H4 supply at 1.3064-1.3109, and higher-timeframe technicals suggesting that the unit may head lower, we feel a sell off from this boundary will take place. Be that as it may, taking a short position from here is difficult. Not only is there the 1.30 key figure to contend with, but a few pips below this there’s an awesome-looking H4 harmonic Gartley reversal zone fixed between 1.2864 (H4 Quasimodo support)/1.2934 (green zone).

Our suggestions: We would pass on looking to sell from the current H4 supply simply because of the 1.30 level. With this number likely being watched by a truckload of traders, it’s a risky trade in our book! The area we are interested in, nevertheless, is the above noted H4 harmonic Gartley reversal zone. This barrier is planted beautifully on top of the daily demand zone mentioned above and is highly likely to produce a bounce to the upside sometime this week. Aggressive traders may look to place stops around the 1.2844 region, while more conservative traders might look to place their stops below the X point of the harmonic formation at 1.2778.

Since this bullish pattern has formed within a bearish downtrend, we’d highly recommend waiting for lower timeframe confirmation to form before placing your capital on the line. This could be in the form of an engulf of supply followed by a subsequent retest, a trendline/break retest or simply a collection of well-defined buying tails seen around the harmonic reversal zone. This, in our opinion, will likely get you in at a better price and potentially avoid unnecessary drawdown.
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