The Future of the Cable

Dear Readers,

Hope you had a great weekend!

The focus of today’s article will be on the GU.

The cable is in a very interesting situation and in my opinion it could be setting up well for a trade.

But… before diving into the charts, let me ask you this:

What you would like to see analyzed in tomorrow’s article?
Share your favorite currency by dropping a comment down below and we analyze it tomorrow!

On Friday I already shorted the GU based on the analysis that will be provided in more detail in this article. The sell was a 1.5770 with a stop above the top at 1.5890. I will redo my analysis and see if the trade is still good to go and if I am looking for a scale-in or not.

FEB 01 GBPUSD 4 HR

First things first: the week chart. As the regular readers of my articles already know, the GU is making a gigantic long term triangle on the week chart.

The down wards impulse on the left suggest that another down move might be likely, but the statistical probability of a fall is perhaps not that much higher than an upward break if we consider that this chart is a weekly time frame.

Single trend lines on the top and bottom could help guide us with that triangle. Any break of the triangle to the up or down side might provide us vital clues to which side the GU is heading. Of course the week chart is only guidance for me. All my trades will be further examined and executed on a lower time frame.

FEB 4 GBPUSD WEEK

At the moment the GU is sitting right at the week single trend line.

1)      It already has bounced off it very recently and is now back at that line. Is this a retest of the week line?

2)      Or are we going to see the break?

Of course both sides will give us traders apple opportunity.

1)      A bounce up could translate in the Cable retesting the previous highs (1,63ish area).

2)      A break through the weekly line could spell the start of a huge down move.

Before you really get excited, hold on to your hat, as the GBPUSD still needs to break through some vertical support.

A few of those levels are 1.55, 1525, and 1.50. But a break through a weekly trend line would give a cautious warning that a down trend might on its way.

Let us zoom into the day chart.

Here we can see that 3 waves down have been completed. The last wave was quite strong. This is either a ABC correction or a 123 trending wave down. If the recent move up was indeed a wave 4, then the wave 5 will break the week trend line to the downside.

FEB 4 GBPUSD DAY

The engulfing day twins on this day chart do suggest that such a scenario is probable. Here is a great article how the Forex candles give  us traders information.

On the 4 hour chart we can see that the recent up move stalled at exactly the 382 of the wave 3. This is quite usual for wave fours, which normally end at wave 4 of a lesser degree and 382 Fibonacci retracement level. The impulsive move down also confirms the high likelihood of this move being part of the 5th wave.

FEB 4 GBPUSD 4 HOUR

Conclusions:

1)      A break of the bottom at around at around 1.5670 would give a good confirmation that the wave count is correct.

2)      The invalidation level is the top of wave 4 at at around 1.5876.

3)      A break of that top would signal to me that the current down move is in fact a correction and it would confirm that this is not (yet) wave 5.

Therefore, with this logic and analysis, a sell at the 500 or 618 Fib of this move down with targets at around 1.550-1.555 the 1.525-1.5350 and the 1.50 areas would seem a decent probability trade. A stop loss would need to above the wave 4 1.5880. Here is a great article on stop losses, if you think you need help on that topic. 

FEB 4 GBPUSD 1 HOUR

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GOOD TRADING

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