Is Sterling turning?

I was putting together my watchlist for the week and noticed an interesting theme in many markets: The Pound. The GBP seems to all over, so I’m going to focus my attention there.

In short, are we seeing GBP weakness about to return, and if so, what would be the best market to target?

GBPUSD

Cable might not be the best market to play here. We saw price slam up into the 1.4300 zone last week, only to give up a lot of ground and close back down at 1.4150. A move lower to support at 1.3840 seems very likely – perhaps even where horizontal support meets the upper trendline I’ve drawn in.

Why is this not the best market to short? Well, support at 1.3840 means that buyers are likely to step in there and we’d have about 300 pips at risk (stops above the swing high) to make 220. Not the best setup, but not bad either.

GBPJPY

The Dragon is full of opportunity.
If price closes where it is now (back inside the wedge), an aggressive trader would look to short it down to the lower trendline, and possibly even lower.
At that lower trendline, you might also look for a long to trade it back up.
Alternatively, if price snaps back up hard today, a trade back to the recent highs is possible.
Right now, with price flirting with the idea of closing back inside the wedge pattern, I think the short option is best.

EURGBP

If you don’t believe in waiting for the retest, have a look at the two ugly red circles I’ve drawn in this chart, both of which saw candles close below support. Had you shorted on that signal, you would have lost. Enough said.

We’re now seeing a hard bounce, back up to the upper trendline. Remember, EURGBP going up also points to GBP weakness.

GBPAUD

A quick look at GBP vs. AUD or NZD shows a similar picture. We’re heading to support.

GBPCHF

The GBPCHF might be the best opportunity of all.

We see price reversing off an important zone on the weekly chart, and printing a bearish engulfing candle in the process. Targets are 1.2900 and 1.2300, 380 and 1000 pips away.

How do we trade this sucker? Well, one could simple short now, with a stop above last week’s high at around 1.3490. Or, you could drop down to the daily chart an attempt a tighter entry, like this:

Wait for the daily chart to retest (pop quiz: How important are retests?) and short below that, providing a much better R.
So the real question is: Can you wait or must you pull the trigger now? If you absolutely must trade right now, you’re going to have to sit with a weekly chart-based 360 pip stop-loss. If you’re willing to be patient, you might get to go for the same targets and use a daily stop of about half that.

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