GBPUSD achieves the ATR target in the post-Easter shortened week

Let’s face it, the whole purpose of doing any form of analysis, whether that is technical, fundamental or statistical, is to try to identify higher probability trading opportunities. As many of you know, one of my favorite strategies is the utilization of a European opening range and while it will typically focus on EURUSD it can be applied to any of the European majors.

For those of you unfamiliar with this strategy, here’s the basics:

• Identify the high and low during the half hour just prior to the London open (usually 2:30-3am ET, but for the next few weeks 3:30-4am ET) and then look for a breakout of this range +/- 10 pips (or 1/10th of the daily ATR) & to maintain above/below this level for 10-15 minutes – This is done to try to detect a direction of the ‘flow’ for the remainder of the day.
• From there, we like to manage this bullish or bearish bias by focusing on 1, 2 or 5 minute charts and utilizing a combination of moving averages (13-sma, 144-ema & 169-ema) & oscillators (RSI, Stochastics & CCI).
• ØOther factors to include are major news announcements (usually in efforts of avoidance) as well as the time of day (when major markets open/close, option expirations, fixings, etc.).

Ideally, if price is struggling near these events (typically spotted by a bullish/bearish divergence with an oscillator), then it could be prudent to reduce the position size ahead of time. Additionally, this type of approach may help to minimize the emotional aspect to trading, since there’s an identifiable area to know where you’re wrong (the opposite side of the breakout’s high/low).

General observations regarding potential Opening range scenarios per week (this should NOT be expected, just overall findings):

• 2 days of the week – Won’t do much (finish roughly flat)
• Once a week – False break & potential reversal
• 1 day a week – Respectable movement (50-70 pips from highs/lows)
• 1 day a week – Reaches ATR target (pip amount general equal to Average True Range using a 14-day period)

Note: If the ATR is achieved earlier in the week, the likelihood of it occurring twice in the same week is dramatically reduced – If it does occur it’s typically in opposing directions.

As demonstrated in the chart below, GBPUSD topped out between the 2:30-3am ET timeframe and then broke below the range shortly thereafter. Interestingly, this move lower was already projected by a bearish moving average signal as the 13-sma crossed below the 144 & 169 ema’s. Additionally, these exponential moving averages proved resistive on the back of key UK/US announcements today (BoE meeting minutes, UK Mar. Public Sector Borrowing & US Mar. New Home Sales) and RSI continued to find resistance near the key 65 level and break below 40 on multiple occasions – Thus, there was no reason to divert from the intraday bearish bias. Interestingly, when the ATR target of 1.6766 (1.6830 - 64 pips) was achieved it was towards the tail end of the London session – Between the NY option expiry (10am ET) and the London Fix (4pm BST), and just prior the European close.

More importantly, since GBPUSD achieved its downside ATR objective today, then this strategy would suggest that it may be prudent to look for reduced downside momentum emanating from the onset of the European session (for the reminder of the week) – As a result, we should remain on high alert for potential false breaks, specifically if we are to see further Sterling weakness. Furthermore, if Cable were to see another large directional move at the beginning of the London session this week it may be more likely to occur to the topside – Of course there is NO guarantee to this, it’s just a simple observational inference (see general observations listed above for additional information).