Choppy Markets Cloud A Potentially Strong GBPUSD Range

Fundamental forecasts and technical price patterns are rarely clean and clear for any market. For recent GBPUSD congestion, this reality leaves the pair on the edge of a potentially lucrative range setup or major breakdown.

Why Would GBPUSD Hold a Range?

· Levels to Watch:
-Range Top: 1.5725 (Fib, Swing High)
-Range Bottom: 1.4360 (Trend, Fib, SMA)


The markets are still very thin; and developing new, major trends will be exceptionally difficult without a deep market to feed momentum and keep opposing market forces inundated. On the other hand, the week fundamentals between the US and UK as well as the inequality for interest rate expectations will make for a strong current to for recharging a dominant theme and trend. Event risk is also a consideration that should be accounted for.

·Looking at the long-term GBPUSD chart, it is hard to miss the dominant trend that has developed for the past 14 months. However, it is very difficult to extend an already exhausted trend in illiquid markets. Therefore, we are left to wonder whether this pair is developing an imprecise triple bottom or pushing the next leg of a major bear trend.

Suggested Strategy


· Long: Half sized entry orders will be set at 1.4480 – above spot.

· Stop: An initial stop at 1.4360 is wide enough to cover a tail on a triple bottom in thin markets. To secure profit, move the stop on the second lot to breakeven when the first target hits.

· Target: The first objective equals risk (120) at 1.4600. The second target will be 1.4800.

Trading Tip – Fundamental forecasts and technical price patterns are rarely clean and clear for any market. For recent GBPUSD congestion, this reality leaves the pair on the edge of a potentially lucrative range setup or major breakdown. Regardless of what happens though, this setup is very risky. Those that are risk adverse should stay clear; and even aggressive traders should approach this cautiously and with a sound setup. Looking at price action into the US session close, we can see that GBPUSD has already closed below the early December low to a six and a half year low. However, history shows us that it is very difficult for a market to revive a move that is already pushing an extreme under normal conditions. When liquidity is as thin as it is during the turn of the New Year, it becomes exponentially more difficult to define a new leg of a major trend. At the same time, such conditions also make for choppy and imprecise markets. Therefore, we are approaching this setup with an entry that looks for confirmation of a reversal, half-sized positions and wide stops - all to lower risk. Furthermore, we will cancel all open orders by Thursday or should spot hit 1.4325 before we are entered.

Event Risk UK And US

UK – Scheduled event risk is significant for the pound, but not until Friday. On the other hand, it is important to look at the broader context in the fundamental drive behind this currency and economy. The United Kingdom is one of the view major nations that can rival the US for depressed forecasts in its growth and financial markets. The housing and consumer sectors in the UK is projected to see far worse times ahead of it thanks to the imbalance in the credit markets and the momentum behind one of the worst global recessions in decades. What’s more, interest rates (a primary gauge for expected returns from assets) still has considerable room to fall in the island nation – and fall they will. This provides the pound with a general bearish tone; but the economic docket will also have its influence later in the week. On Friday, the calendar fills out with credit, housing and manufacturing data that will be essential to discounting next week’s BoE rate decision.

US – The ebb and flow in dollar interest that is based on the concept of the US as a safe haven has certainly tempered with the global drop in liquidity. However, in its place comes the primary fundamental forecasts for growth and financial health that were previously relegated to the back burner when panic was diverting capital to Treasuries. This outlook is certainly bleak. On the other hand, the market has certainly made the effort to discount such concerns. To try and unbalance these long-term considerations, economic indicators may have their way with price action over the coming days. Tomorrow, the lagging S&P/Case-Shiller housing sector inflation gauge will reaffirm what other indicators have already established, but a December consumer sentiment gauge will offer a better angle.

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