GPB/USD looks interesting. Here’s why
During the course of the last few
weeks the EUR and CHF have both broken through important resistance against the
USD, and moved nicely higher in what
looks like the start of longer-term trends. So far, Sterling has not been able
to do the same. GBP/USD has indeed rallied nicely of late, but has yet to break
through important overhead. What that presents us with is a very interesting
scenario.
Take a look at the intraday GBP/USD chart below (three hour
bars). Notice how the market has spent the last few trading sessions since the
middle part of last week moving in a sideways consolidation between about 1.7750
and 1.7930. This is a pretty natural action following the strong rally up from
a little above 1.7500 the market experienced during the early part of last week.
Now take a look at the daily GBP/USD chart below. We can see
that last week’s strong run higher took the market right up to the area of the
last significant peak, which was put in back during the latter part of January.
In the course of doing so, prices spent a significant amount of time outside the
upper Bollinger Band (the overlay lines on the chart). As this is generally not
something sustainable, it was to be expected that the market was going to have
to spend some time consolidating to allow the Bands to catch up to price. That
has happened, so what now?
Refer again to the intraday chart, this time with an eye on
the Bollinger Bands. During the consolidation, especially in the last day, the
Bands have begun narrowing rather quickly. That, by itself, is not a signal,
but it does provide the opportunity to look for something interesting to happen
before long. Narrow Bands are often a precursor to significant moves. One need
look no further than prior to the move up from 1.75 to see that.
The Bands are not that narrow right now, but if GBP/USD
continues going mostly sideways today, they will start to get there. My
personal feelings is that if the market holds off from doing anything
significant in the next 24 hours, we could have a great buying opportunity. GBP/USD
will eventually follow EUR/USD higher. It’s just a question of when and how
strongly. The longer the current consolidation takes, the more likely that move
will be powerful and sustainable. If it happens too quickly, though, the market
will rapidly get overbought and the move will almost certainly stall out.
John Forman is the author of
The Essentials of Trading
(Wiley). To celebrate the book’s release later this week, there will be a
special 24-hour only promotion with giveaways worth $1000s. Find out more at
www.TheEssentialsOfTrading.com/special-offer.html.