Potential large pullback on the GBP/USD pair
Courtesy of our valued member Gary Connell.
Hi Peter.
Hope you are keeping well. It has been a while since I've sent in some work of mine for you to consider, but I still do religiously follow your AM Reviews. I also got hold of a copy of Chris Lori's advanced course work. Boy, I thought I knew how to trade well but, hey, he is one hell of a smart trader. Lots of extra little tips have come my way thanks to him, and it is great that he has allowed us to develop our trading minds in also paying attention to the fundamentals which, when you fully understand them, it sort of just makes that big jigsaw puzzle fit together a little nicer. Give out a big thanks to Chris, as I believe he is a great asset for the Forexmentor team you have there Peter.
Anyway, following on from your recent comments this week about the euro and the pound maybe topping out, or not too far away in any case. I thought I'd show you this long-term weekly chart for the GBP/USD, if you haven't already seen it. It's a simple chart with just price, one trendline and Fibonnacci retracement lines.
First thing - the mother of technicals: long term powerful trendlines - don't buck the trend until it ends! As we all know, currencies trend very very well. There is a trendline in place that goes back all the way to February 2001. Nearly 6 years ago! We can clearly see over the years how price has always been drawn back to this trendline once it goes to the other side. This trendline has acted as either resistance or support 10 times in the last 6 years, and then only last week (Friday) price came down the test this line in around 1,9465 before bouncing off it upwards to the tune of 250 pips.
Now, here is the interesting part, in backing up your view on maybe the pound topping out. Price is currently finding itself in a wedge (previous 1st Dec. 2006 high line and this powerful trendline), a wedge that it will no doubt have to break out at some point in the future. Problem is that, if it breaks out to the top-side of its current 14 year high (1,9848), we will no doubt see a massive move up onto and, maybe, just beyond the very big 2.0000 number, but which would, of course, lead to major profit taking kicking in at this majorpsychological number and, hence, a big pullback.
Or, if the trendline I've drawn is conclusively broken to the downside, then a big drop in price would be on the cards, backing up the current COT data. Each time this line has been broken, either to the upside or to the downside, several hundreds of pips are easily put onto the table.
For those Fibonnaci fans out there as well, price has ALWAYS come back eventually to hit at least the first line at 23,6% since the major Cable low of 1.3689 back in June 2001 on any major run-up. That means that, if price has topped out on this big run-up that started back this time last year, price could be heading for a 1200 pip fall down to around the 1.8400 level, a previous resistance area, turned support, between June and August 2005 (the Big Dog traders remember those levels). One hell of a number to get to I agree, but this amount of pips has already been done by the cable to the upside in just last 2 months. So, why not?!
Food for thought for those position traders out there, and for the newbies, to show how price on the cable seems to always come back to this powerful trendline, no matter how far away price is at present. Hope it proves to be of use.
Have a great weekend.
Gary Connell
France
Hi Peter.
Hope you are keeping well. It has been a while since I've sent in some work of mine for you to consider, but I still do religiously follow your AM Reviews. I also got hold of a copy of Chris Lori's advanced course work. Boy, I thought I knew how to trade well but, hey, he is one hell of a smart trader. Lots of extra little tips have come my way thanks to him, and it is great that he has allowed us to develop our trading minds in also paying attention to the fundamentals which, when you fully understand them, it sort of just makes that big jigsaw puzzle fit together a little nicer. Give out a big thanks to Chris, as I believe he is a great asset for the Forexmentor team you have there Peter.
Anyway, following on from your recent comments this week about the euro and the pound maybe topping out, or not too far away in any case. I thought I'd show you this long-term weekly chart for the GBP/USD, if you haven't already seen it. It's a simple chart with just price, one trendline and Fibonnacci retracement lines.
First thing - the mother of technicals: long term powerful trendlines - don't buck the trend until it ends! As we all know, currencies trend very very well. There is a trendline in place that goes back all the way to February 2001. Nearly 6 years ago! We can clearly see over the years how price has always been drawn back to this trendline once it goes to the other side. This trendline has acted as either resistance or support 10 times in the last 6 years, and then only last week (Friday) price came down the test this line in around 1,9465 before bouncing off it upwards to the tune of 250 pips.
Now, here is the interesting part, in backing up your view on maybe the pound topping out. Price is currently finding itself in a wedge (previous 1st Dec. 2006 high line and this powerful trendline), a wedge that it will no doubt have to break out at some point in the future. Problem is that, if it breaks out to the top-side of its current 14 year high (1,9848), we will no doubt see a massive move up onto and, maybe, just beyond the very big 2.0000 number, but which would, of course, lead to major profit taking kicking in at this majorpsychological number and, hence, a big pullback.
Or, if the trendline I've drawn is conclusively broken to the downside, then a big drop in price would be on the cards, backing up the current COT data. Each time this line has been broken, either to the upside or to the downside, several hundreds of pips are easily put onto the table.
For those Fibonnaci fans out there as well, price has ALWAYS come back eventually to hit at least the first line at 23,6% since the major Cable low of 1.3689 back in June 2001 on any major run-up. That means that, if price has topped out on this big run-up that started back this time last year, price could be heading for a 1200 pip fall down to around the 1.8400 level, a previous resistance area, turned support, between June and August 2005 (the Big Dog traders remember those levels). One hell of a number to get to I agree, but this amount of pips has already been done by the cable to the upside in just last 2 months. So, why not?!
Food for thought for those position traders out there, and for the newbies, to show how price on the cable seems to always come back to this powerful trendline, no matter how far away price is at present. Hope it proves to be of use.
Have a great weekend.
Gary Connell
France
1 Comments:
Great article. I have a slightly different view of what will happen here.
I believe price will fall to approximately 1.9100 between today Dec 15 and the end of the year. Jan 1st I expect price to push north back to the upper trendline formed by the 1.9850 high. Perhaps price will channel back & forth between those two trendlines for the first quarter.
Just a thought.
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