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5 "Tells" that the Stock Markets Are About to Reverse

GBP/USD – Currency Bulls vs. mid-October Highs

Currencies / British Pound Nov 03, 2017 - 03:18 PM GMT

By: Nadia_Simmons

Currencies

Although GBP/USD increased a bit recently, the resistance area created by the mid-October highs continues to keep gains in check. What’s next for the exchange rate?


EUR/USD

In our Forex Trading Alert posted on September 25, we wrote the following:

(…) we clearly see a potential head and shoulders formation. Therefore, if EUR/USD declines under the neck line of the pattern (the blue support line based on the previous lows), we’ll see a downward move to around 1.1596, where the size of the move will correspond to the height of the formation.

From today’s point of view, we see that currency bears realized the above-mentioned scenario on Friday, which somewhat reduced the selling pressure and resulted in a rebound in the following days.

Despite the recent increase, the green horizontal line based on the mid-August and early October lows continues to keep gains in check. This suggests that as long as there is no daily closure above this resistance all upswings could be nothing more than verifications of the earlier breakdown below this line.

What does it mean for the exchange rate? In our opinion, if this is the case and EUR/USD reverses from current levels in the near future, currency bears will likely not only test the recent lows, but also push the exchange rate to around 1.1508, where the size of declines will be equal to the height of the brown rising trend channel. Additionally, slightly below this level is also the 38.2% Fibonacci retracement, which increases the probability of reversal.

GBP/USD

Looking at the weekly chart, we see that the overall situation in the medium term hasn’t changed much as GBP/USD is trading in the yellow consolidation inside the brown rising trend channel, which makes the broader perspective a bit unclear.

Will the daily chart give us more clues about future moves? Let’s check.

From the daily perspective, we see that although GBP/USD rebounded recently, the yellow resistance zone based on the 50% Fibonacci retracement and the previous highs stopped currency bulls, triggering a pullback.

Additionally, the CCI generated the sell signal, while the Stochastic Oscillator is very close to doing the same, which suggests that we’ll likely see a decline to the lower border of the brown rising trend channel (marked on the weekly chart) and the October lows in the coming days. Taking all the above into account, we believe that our profitable short positions continue to be justified from the risk/reward perspective.

USD/CAD

Looking at the daily chart, we see that the situation remains almost unchanged as USD/CHF is trading around the previously-broken upper border of the purple rising trend channel. Earlier today, the exchange rate dropped below this line, but in our opinion, this development will turn into bearish only if we see a daily closure under this resistance line.

Will we see such price action? On one hand, the RSI, the CCI and the Stochastic Oscillator generated the sell signals, suggesting further declines and (at least) a test of the yellow zone created by the mid-August highs and the 38.2% Fibonacci retracement.

However, on the other hand, as long as there is no daily closure inside the purple rising trend channel, the recent drop could be a verification of the earlier breakout, which would translate into one more move to the upside. Therefore, waiting at the sidelines for today’s closure is justified from the risk/reward perspective.

If you enjoyed the above analysis and would like to receive free follow-ups, we encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Oil Trading Alerts as well as Gold & Silver Trading Alerts. Sign up now.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski
Founder, Editor-in-chief

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Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


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