Top Down Analysis on the GBPUSD

I was driving home from San Francisco on 17 hw after watching the National Asian Beauty Pageant. When I saw a car parked in the middle of the freeway at 2 am. I could not avoid it, slammed into the car and hit the barricade, stayed in hospital for 2 days. Now here I am...

Let’s start the week with a quick update on Friday’s SOTD, “Top Down Analysis on the GBPUSD”. I tried to switch things up a bit by providing a step by step description of my trading considerations while leaving the final analysis and levels up to you, although bearish price/momentum divergences and fundamentals were implied.

Market developments since Monday have seen these bearish implications play out with risk seemingly coming back off the table. Strong Q2 results could prove to be an obstacle towards continued risk aversion though these earnings results tell more about the past than the road ahead. Considering the likelihood that Q2 profits may be driven by stimulus spending, census hiring, and businesses restocking inventories; sentiment seesawing back towards risk aversion is foreseeable. The expiry of the home-buyer tax credit and its negative effect on housing numbers, continued woes out of the US jobs market, and sovereign debt concerns in Europe are forward looking indications that slow growth and risk aversion may continue to headline markets in the coming quarter.

Turning back to the charts, GBPUSD broke below the rectangle consolidation pattern and trendline support to a low near 1.4945. Early NY trading saw the pair test near 1.5075(50% retracement of the recent leg lower) and turn back to trade right back down to the figure. As Friday’s post provided the analysis but left the decisions to the readers, hopefully there were those who were able to take advantage of these moves from Sunday’s open on. The chart below outlines these moves and current levels. Trendline resistance on RSI has helped cap this recent correction higher. 1.5075 has proved to be a key level as the retest of the breakout level and coinciding fib level capped the aforementioned correction. Resistance should be seen into it, ahead of 1.5105(61.8% retracement level) with the 100 and 200 hr SMAs hovering slightly above into 1.5117 and 1.5124, respectively. On squeezes higher, I’d look for these levels to provide short term resistance and subsequent sell zones. Price projections on the rectangle consolidation break are for a move into 1.4925. Below 1.4925 may see 1.4875 hourly trendline support retested.