GBPUSD: The Cable after a week of Elections, Rallies and Spikes

One of the highlights of last week was the UK general election. The cable remained remarkably resilient and even rallied over 200 pips prior to the elections, as a result of the dollar weakening and the UK services pmi coming in better than expected. On the day of the elections itself, it dropped almost 100 pips, due to the uncertainty of there potentially being no clear majority in parliament, but the pair never really sold off and kept trading within a bullish parallel channel and a nice triangle before the elections results came in.

When the exit poll was released, it showed the Conservatives had a likely win and the cable broke out of the triangle to spike 190 pips within a minute. When subsequently the results of the marginal seats (key to determine the final outcome of the race) proved to be in favour of the Conservatives, the pair rallied over the course of a few hours and briefly popped above the 1.55 handle, before retracing 50% of the move. The Conservative victory eliminated political uncertainty and is viewed by the market as favourable for the UK economy. Thursday night provided excellent opportunities for scalping the election results, riding rallies and fading spikes.

On Friday the NFP came in without much deviation, which was good, but it failed to provide a clear direction for the Dollar Index as uncertainty over the Fed rate hikes remains (helped by a small miss on average earnings ) and the cable ended the week with a net gain of 300 pips. Fundamentally, the USD remains the strongest currency in the longer term, but the market reacts to any data and US data has not been decisively good lately. The GPB is one of the strongest currencies (especially now that the current government can stay in power) and the BoE is second in line to raise rates behind the FED.

On the technical side, we can see the contour of a potential Crab pattern (a 5-point extension structure) on the 4H chart. The exit poll spike moved the price decisively passed the B point and it found support around the 1.54 handle, where the X point of the pattern lies. The X point of any harmonic pattern is always controversial and ideally it would be a major high or low, but it can also be a top or bottom within a larger swing, so this X fits my rules since it’s the 50% retracement of the move down that preceded it.

This support at 1.54 could help the pair move up, towards the D point of the pattern, which has a nice confluence with both the upper channel line and a daily resistance level . If this pair follows the script, price will reverse there. Reversals for Crab patterns can be dramatic and extreme price action as it approaches its completion point is not uncommon. There are some news events on Monday, though its very probable there will be no change to the interest rate, neither a rate statement and this could be a non-event but regardless we will have another interesting trading week for the Cable.

SL goes 45 pips behind the daily resistance level . TP1 = 382 retracement of AD and TP2 = 618 retracement of AD. 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 hunting for TP2.

There are 305 pips to be made (if this pair follows the script) and the trade has an excellent reward – risk ratio of 7.7!

Please like this idea if you think its useful and / or leave a comment below.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
im only a newby here but i think your analysis was a bit wrong :P
+1 Reply
JasperForex PRO owen.daniel.davies
This trade idea did not turn out to be a winner, thats correct :-) Price did complete the Crab and seemed to reverse after doing so, but then it broke out of the channel and just kept going.
I think that is why we have stops in place - as a trader, we consistently look for setups and also great RR - if it does not work this time, it means the market is not ready yet and have to respect it. Before building my short positions, I am aware of an AB - CD risks and put all that into consideration. WIth prices running higher - this simply means we could be in a better situation to play short = increasing our probability of success. Happy trading
+1 Reply
JasperForex PRO sugardaddyFED
Agreed, the stop loss was clearly marked so the loss was contained and the reward risk was excellent on this trade. If another one like this comes along and it becomes a winner I would recover this loss and be well in profit. So no worries, trading carries no guarantees (and thats part of the fun of trading imho).
+2 Reply
Please post another one on GBP/USD - my filter says the following:
- usd found support/rsi divergence/dead cat bounce
- gbp overbought/all timeframes shows RSI divergence
-today gbp open lower than yesterday high (weak filter here)
-Friday repositioning
+1 Reply
Hi great analysis and i am waiting to build short positions with the following outlook (using Fib and RSI also showing divergence)
Build Short at 1.5550-1.5590 (stop at 1.5650)
Target 1 at 1.5400 and (raise stop to BE) Target 2 open
+1 Reply
JasperForex PRO sugardaddyFED
Good plan, the Crab completes at 1.5585 (well within your short building area) and our first target is almost equal. Good luck to us!
+1 Reply
Initiated small shorts and continue to place short accordingly in that zone - stop placed - target set = GOOD LUCK TO US!
+1 Reply
JasperForex PRO sugardaddyFED
Crab completed and we have clear regular bearish RSI divergence. Looking good so far.
+2 Reply
very nice analysis, appears to be a shooting star candle also or a gravestone doji as some others would call it. Considering shorting this off of the open today.
+1 Reply
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