The month of August is well known for its lack of “enthusiasm”. With that I mean: the Forex market hardly moves an inch in one direction and is often caught in a very tight range.
Has the August of 2014 lived up to its long-term reputation?
Overall we can say: YES. A typical August consolidation pattern is visible on most of the Euro and Yen pairs with the exception of the Pound currency. The GBPUSD i.e. fell from 1.68 to 1.6685 on Wednesday and eventually to last week’s low of 1.6650.
Here is the EURUSD consolidation on the one-hour chart. The difference between top and bottom is a mere 110 pips.
Here is the USDJPY consolidation on the one-hour chart: yet again a tight range of 150 pips.
HOW TO TRADE GBPUSD DOWN TREND
Maybe the Cable offers a different perspective… last week’s weekly candle was again bearish. This marks the 6th bearish candle in a row and the 5th candle with lower lows and lower highs. Will this upcoming week be the 7th bearish candle in a row?
Nobody knows that answer with certainty but trading the weekly candle retracement would have provided profitable results 4 weeks straight. Of the last 4 weekly candle retracements, price stopped at the following Fibs:
- 23.6% Fibonacci level: 1x
- 38.2% Fibonacci level: 2x
- 61.8% Fibonacci level: 1x
The above stats show a tendency for most retracements to be relatively shallow (23.6% and 38.2%). There is a decent chance that this week will have a similar pattern.
SETUP DETAILS OF GBPUSD
With the GBPUSD close to weekly bullish support levels at 1.6680 and 1.67 and the fact that the Cable did not close below those levels, I would want to see a confirmation of price respecting the bearish weekly candle Fibs with a 4 hour candle stick pattern (such as a wick, pinbar, engulfing, etc) before entering a trade setup.
These Fib levels are the main decision spots which I recommend to monitor closely:
- 38.2% Fib at 1.6727
- 50% Fib and previous broken bottom (purple) at 1.6750
- 61.8% Fib and resistance trend line (blue) at 1.6771
- 78.6% Fib and round number at 1.6803
With the above knowledge in mind, a logical stop loss placement would be above last week’s candle high at 1.6857 (conservative) OR above 4 hour candle stick pattern (aggressive).
The main take profit zones are the Fibonacci targets of -27.2% at 1.6606, of -61.8% at 1.6541 and of -1.618% at 1.6355.
Be aware that this week’s candle could turn out to be a reversal or range candle. A break of 1.68 would increase the likelihood that the downside momentum has been iced and placed in the freezer by the August consolidation.
This week we will be back with more setups so make sure to keep an eye on our blog. Which currency pairs would you like to have reviewed?
As always, thanks for sharing this post with others and wish you Happy Trading!
Latest posts by Chris Svorcik (see all)
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