The GBP fared worse of all against the USD opening up London around the 1.41 handle and is now bottom feeding just under 1.3800 at the time of this writing (1pm PST). This move was impulsive, steady and relentless even before it broke the big figure at 1.4000.
Looking at the 30m chart below, it sold off for 13 of 14 candles in a one way train and stayed inside the Bollinger Pocket (Green/Purple bands) only to exit out just after the London close. Since then, the pair has mounted little or no comeback and is barely holding above the S3 pivot. Considering the FX markets have been pretty dull shortly after London closes lately, we expect the pair to trade in a 1.3850-1.3750 range through the Asian session but if that range holds, we anticipate another strong breakout come late Tokyo or early London tomorrow. The question is where and how to get in.
You could do a traditional collar order and place orders above or below the range but my natural penchant is to either way for an intraday Ichimoku signal or another BB pocket trade with the price action looking similar to how it did last night.
If we wanted to take an Ichimoku signal, looking at the chart below, we’d need the pair to create an upward crossover of the Tenkan Line (white line) over the Kijun (red line) and then cross over that same line below the cloud which would create a Strong Ichimoku Sell Signal. If this were to happen, targets would be today’s lows and then an eventual break of 1.3700 targeting the years lows just shy of 1.3500.
The shape and thickness of the cloud along with its trajectory coupled with price action suggest the next leg is likely down and with the 20CCI not making it above the zero line once today, the pressure is on and should continue. The downward crossover of the Tenkan and Kijun line should start the next leg down.
Chris Capre is the Founder of Second Skies LLC which specializes in Trading Systems, Private Mentoring and Advisory services. He has worked for one of the largest retail brokers in the FX market (FXCM) and is now the Fund Manager for White Knight Investments (www.whiteknightfxi.com/index.html). For more information about his services or his company, visit www.2ndskies.com.