We have been paying attention to the GBP/USD chart for over 2 years now and the expected Head and Shoulder (H&SH thereof) is playing out amazingly, fueled by the recent events of BRexit and constantly disappointing GB economic news. The Neckline of $1.4 is in tack, and if breached (which is the most likely event) will cause GBP/USD to mark fresh All Times Low.
As tempting as it seems given that there is much more downside in the table, the risk reward ratio is not favorable for going Short in these levels As will be explained below, there will be retracements in the following days, which will allow us to go short while keeping risk under control. Long positions are a favorable option for intra-day trading and should be associated with very tight stops.
Keep in mind the fact that GBP/USD is headed to test the 2009 Low ($1.3498) and the only way how it can invalidate this theory is if $1.47- $1.5 level is breached.
- On the 4 hour timeframe chart: Wave 3 seems to have bottomed. While it is never a good idea to trade 4th waves, Fibonacci’s Retracement indicates that wave 4 may reach for 38% ($1.4118), 50% ($1.4205) and/or 60% (1.4351) providing for us better setups on the long side with tight stops.
- On the bigger picture we are dealing in Oversold environment, during which, slight upside movement leads to aggressive short covering further fueling the upside. This is the reason why we believe that if $1.390 holds, we will catch the $1.4, $1.42 and $1.43 targets.
Buy Stop 1.4042. Enter long once this level is broken.
Stop Loss: 1.3980
Target 1: 1.4150
Target 2: 1.4251
Target 3: 1.4351
In the event that Target 1 is reached, we will adjust Stop Loss to entry price.