- GBP/USD is embarking on a correction towards a 38.2% Fibonacci of the September bearish impulse.
- This gives rise to a downside extension in a 1,2,3 setup.
The market is a potential fade on rallies and from a top-down analysis, a potential sell limit setup is illustrated in the following flow of charts
Starting with the monthly chart, we can see that the price has been rejected at a strong area of supply and the market is in a phase of distribution.
The monthly wick has reached a soft level of demand and is most probably going to be filled in by the subsequent supply on the lower time frames.
The weekly chart shows the correction that is just getting underway for which a 38.2% Fibonacci retracement could well be an area from where the next downside impulse and a continuation of the monthly supply kick back into gear.
The end result would equate to a 1,2 and 3-wave sequence, the third being the extension of the monthly supply.
The daily chart complicates the target zone somewhat with there being two structures; the green candle and then the 38.2% Fib.
Nevertheless, the trade setup with the highest probability will be found on the 4HR time frame once either of these levels are reached.
As soon as either level begin to reject the price, that is when the bears will be able to look for a high probability setup as follows:
4HR trade set up
Further reading: EUR/GBP bearish correction paves way for higher highs
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.