GBP/USD – Bull Speculation: Expected Upward Correction

Trading opportunities for currency pair: a candle with a small body and a long lower shade has formed. The rebound was 180 points. It’s likely that we will see an upward correction to 1.4565. Growth will cancel with a close of the weekly candle below 1.4079.

Background

The last ideas I made on the GBP/USD were out on 30th November and 7th December, 2015. Both of these ideas were based on a weakening of the pound. The Bank of England and the NFP wakened the buyers’ positions in November. A serious shift in expectations of an interest rate rise took place. The US labour market report was better than expected.

The sellers switched into attack mode. With their activeness up, I expected to see the pound weaken to 1.4560/65 by the end of 2015. The target was reached on 7th January, 2016.

Current situation

Pressure on the pound increased after the new year due to a fall in global stock indices and the price of oil, coupled with the lack of desire on part of the BoE to raise interest rates. By 25th January, the pound/dollar rate had dropped to 1.4079. I think that, while the indices were falling, the central bank did what it could to devalue the currency via the crosses.

Last week the pound updated its minimum against the US dollar after the BoE’s Mark Carney came out saying that the UK economy is weak and that now isn’t the time to increase interest rates. By doing this he knocked 150 points off the GBP/USD.

Interest in the GBP came back during Draghi’s press conference last Thursday. He announced that an assessment of the economic situation in the Eurozone will take place in March and that corresponding measures will be taken to stimulate inflation and economic growth will be taken.

A growth in stock indices and oil prices, in addition to that of pound crosses, has had a positive effect on the pound against the dollar. The fall in stock indices and fleeing from risk has ceased. The pound/dollar is up from a 1.4079 minimum to 1.4260 (Friday’s close) against 1.4362 (week’s maximum).

What’s interesting at the moment?

After a break in the lower limit of the A channel, the rate fell from its range by 123%. Looking at the candle’s close we can see a small body with a long lower shade. The bounce was 180 points. The likelihood of the upward correction continuing to 1.4565 is high.

It would be worth opening long positions when there’s a break past 1.4362. I have put part of the daily graph especially in the weekly to show you the two pinbars which formed the range of the weekly candle. Now we need to wait for a break in the 1.4362 maximum.

According to the cycles on the daily timeframe, the upward correction should continue to 20/02/2016. The same picture for the cycles is on the euro/pound: a fall until 20/02/2016. A fall in the cross means the pound will receive a powerful support. If the dollar correction gathers pace, any revival of the stock indices will mean the scenario for growth will come off.