Despite weaker than expected UK manufacturing production and industrial production data that came out yesterday and ahead of the BoE inflation report tomorrow morning, this pair is making some gains the last 2 days and is fighting against the downtrend on the daily. The BoE are expected to downgrade their cpi forecast for this year, making a rate hike increasingly unlikely. The interest rate differential with the FED should continue to create selling pressure, so even though the GBP is not considered a weak currency by me, I remain bearish on this pair, but the BoE could surprise with a more hawkish tone than expected so we shall see if the main trend will continue.
On the technical side, we can see the contour of a bearish Bat on the hourly timeframe. Price has comfortably passed the B point and progressed 60% towards the potential reversal zone (PRZ). When defining the PRZ for a Bat pattern, we look at the projection of three harmonic levels. I: the 886 retracement of XA, II: an extended AB = CD pattern (in this case 1272 AB = CD) and III: a BC expansion (in this case 2240 BC). This defines an extremely tight zone, about 5 pips wide, represented by the orange lines in the chart. There is some structure near this zone, which increases the edge of a reversal.
Should the price climb enough to test the PRZ, stabilise and reverse convincingly, I would enter short. SL goes 10 pips behind the next resistance level. TP1 = 382 retracement of AD and TP2 = 618 retracement of AD.
There are 85 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 3.0!
UPDATE: The hawkish tone of the BoE´s quarterly inflation report resulted in GBP strength and a bullish GU. Price action for this trade candidate overshot X and never gave an entry signal so I did not enter. On to the next trade.
On the technical side, we can see the contour of a bearish Bat on the hourly timeframe. Price has comfortably passed the B point and progressed 60% towards the potential reversal zone (PRZ). When defining the PRZ for a Bat pattern, we look at the projection of three harmonic levels. I: the 886 retracement of XA, II: an extended AB = CD pattern (in this case 1272 AB = CD) and III: a BC expansion (in this case 2240 BC). This defines an extremely tight zone, about 5 pips wide, represented by the orange lines in the chart. There is some structure near this zone, which increases the edge of a reversal.
Should the price climb enough to test the PRZ, stabilise and reverse convincingly, I would enter short. SL goes 10 pips behind the next resistance level. TP1 = 382 retracement of AD and TP2 = 618 retracement of AD.
There are 85 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 3.0!
UPDATE: The hawkish tone of the BoE´s quarterly inflation report resulted in GBP strength and a bullish GU. Price action for this trade candidate overshot X 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