By Chloe Edwards, Trade With Precision
In the search for trending opportunities in the markets this week, my attention turned to the British pound sterling, and I plan to focus this post specifically on GBP/USD.
In March, the price of GBP/USD followed most of the other global markets, dropping significantly and taking it below the solid and rarely breached horizontal level of support at 1.2000. It stayed below this level for a week, before recovering to the range it has held since then.
Price has mostly held above a level of support at around 1.2250 since late March, with no clear trend emerging. However, I have been waiting patiently for this level to break and a downtrend to emerge. It appears that this could now be happening, yielding potential trend trading opportunities. As always, I am keeping risk management at the forefront of my mind in these uncertain times, while continuing to look for opportunities to take advantage of any emerging bear trend.
On the daily chart I can see the potential beginnings of a downtrend, with the most recent high being lower than the previous high, and the low at the 1.2250 level having just been broken, giving a lower low.
The 10, 20, 50 and 200 moving averages (MAs) are not yet lining up to show good bearish geometry on this timeframe, as I am looking so early on in the trend. There is every possibility that these could start lining up in a bearish fashion though, if price continues downwards. The RSI indicator is trending lower in a bearish fashion, showing convergence with price, which could confirm the trend momentum to the downside. If price does continue downwards I will then be awaiting a pullback into the MAs, ready to take a potential short trading opportunity. My target would be the 1.2000 level.
In the meantime, while awaiting the setup on the daily timeframe, I am also looking to the lower timeframes in order to gain a potentially better reward to risk trade. On the four-hourly timeframe, I notice bearish price action with lower highs and lower lows forming. I also see good moving average geometry, with the 10, 20, 50 and 200 MAs lined up and pointing downwards.
I also see bearish convergence of both the RSI and MACD, which could confirm the downwards momentum. I notice that price has recently pulled back into the MA sell zone on this timeframe. However, the subsequent candle printed was large and therefore unsuitable for a trade entry. I continue to look for lower highs and lower lows and await a smaller candle to print if price pulls back again into the sell zone.
If price does continue lower from here I will also be looking to the hourly timeframe for a potential setup. I will still be aiming down towards the support level at 1.2000.
Stay safe and healthy, and happy trading.
Trade With Precision