GBPUSD update: Price jumps off of reversal zone boundary and is now testing the bearish trend line. Thanks to a vote to raise interest rates in August by the Bank Of England’s chief economist. Interestingly enough price was sitting at a level where probability of a bullish retrace was high. Being aware of these types of levels in advance is a key aspect to anticipating market moves, not following indicators or news.
The Major Support Area
I recently wrote an article about how a bullish setup was forming into the recent FOMC meeting (you can read it here). It fell apart quickly when Draghi hammered the markets with his unexpected dovish stance the next day.
Being aware of major announcements such as these are helpful when it comes to navigating the forex markets. It is not about expecting a particular direction, but instead about expecting a large reaction or range expansion. This can help when it comes to entering on particular triggers or waiting it out. Scheduled events are common in forex. FOMC meetings and NFP are two major ones to always look out for.
With that being said, these events serve one purpose: they are a catalyst. They will often push prices to where they were going anyway, just faster.
In the case of the GBP, 1.3329 is a major support level (.382 of bullish structure that dates back to the October 2016 low). Since it is such a large magnitude, precision around the level will be low. This means price can fluctuate within 100 pips of the level and still find support. Even with this margin of error, the chart tells us we should be looking for signs of bullish reversal, and avoid selling.
The Reversal Zones
Reversal zones are high probability areas where reversal is most likely to occur. 1.3143 is the most recent boundary which was in place since June 6th. Draghi helped push price to this area faster and now coincidentally, the BOE comes out with a vote for an interest rate increase. Convenient timing as price was sitting just below the level.
After the inside bar high at 1.3218 was taken out, a long signal went into effect. Does that mean buy now? No, but the next minor retrace may present an attractive opportunity, especially if the bearish trend line is decisively compromised.
Charts Provide All The Answers
The lesson to learn here is this: Simply following the predetermined levels on the chart serve as a better guide to developing a trade idea than anything else.
They offer a price location to anticipate particular behavior in advance. Whether that behavior unfolds or not is up to the market, but if it aligns with your expectation, then a high quality trade idea may be in order. No indicator or market analyst will offer this type of insight (especially if they are free).
Looking ahead, price now has a minor resistance zone to contend with. 1.3332 to 1.3394 is the .618 of the recent bearish swing. If we learned anything from the 1.3329 support level, we should know that this resistance is better for taking profits if you happened to be long rather than looking for short opportunities.
The next level to anticipate selling is the 1.3593 area which is the .382 of the recent bearish structure relative to the 1.4377 high.
The Fast And The Curious
Overall, decision making in these markets requires the ability to adjust to new information quickly. This does not mean you are constantly putting on trades, but it does mean when you are in one, it helps to be aware of any levels, signals or announcements that can change things quickly.
If you were not aware of the support levels, moves like the one in progress can blind side you. Always be aware of your location and what is more probable.
Just before the BOE “vote”, this market looked like it was just going to keep selling with no buyers in sight. And within hours price is pressing up against the bearish trend line. Things change fast.
This is why we always advocated anticipating. Determining levels in advance is the first step to accomplish that. As of now, we are anticipating bearish price action in the upcoming resistance zone but we know it is minor. If a short is in order, it will not be until price reaches the 1.3593 level. And even then, it will depend on an appropriate reversal candle or formation to appear.
Questions and comments welcome.