After a great week trading GBP crosses it is time to take another look and see what is in store now. I’ll use both EUR-GBP and GBP-CHF, since these were the pairs I’ve been following on these pages. After extended down trend, Pound has finally shown strength and made serious run. I was fortunate enough to anticipate and capture most of these moves. The question now is, will they continue? And have trends been broken?
It depends on what time frame. Some people use trendlines to determine trends. I can’t draw trendlines objectively and must use other means. One of them is 100 SMA. I have no influence of how it is plotted on the chart(other than the color) so in my mind it is an objective tool. It lacks precision, though. That’s why I look at the chart itself. For me trend is broken only if the most recent high/low is taken out.

On this chart most recent low is around 0.8250, so trend has not been broken yet. That said, last few candles created a very strong reversal pattern. Those who trade of candlesticks, should be entering short positions now. Myself I jumped the gun, and started to sell earlier, but was using smaller magnitude charts for entry. One must remember that presence of reversal formation, even as strong as this one, does NOT guarantee end of trend, only strongly enhances probabilities. The odds are augmented by powerful, parabolic run before. Sharp crushes tend to follow them. For all practical purposes, this chart has makings of reversal, but it is not confirmed yet on technical merit.

Daily charts shows that current move reached 62% retracement level of previous up swing. If we don’t see reaction in this area, and price continues to fall we should see confirmation of reversal soon. Price swings have been historically extreme for EUR-GBP, which presents special challenges for trading either daily or weekly charts. If one was to enter a short position here, the proper stop would be above latest high, which is 1000 pips. Huge by anyone’s standards and difficult proposition. Entering about week ago was far less risky. From now on I’m looking at these charts for guidance only, with trades being taken only on 4H and 1H charts. Intermediate term chart (4H) has broken under 100 SMA and fell below recent low, so, by my definition, it is in a down trend. As a matter of fact I expect corrective move there to about 0.92-0.93, before the sell off resumes. Also, we should start seeing decrease in daily trading ranges, which are still extreme.
GBP-CHF is in a very similar situation.

Just like EUR-GBP, we have great example of a candlestick reversal pattern. One thing about candles is that their significance increases with time frame. Nice formation on weekly charts has bigger chance of being correct, or predictive, than this same formation on, say, 15M charts. However, trend is not broken yet on this chart. So far just corrective move, with good potential for reversal.

Daily chart shows that so far price retraced only to about 50% of most recent swing. This was enough for my trade which I closed yesterday(last post). Entering long positions using any of these charts, while correct, would carry large draw down potential of about 1800 pips. Just like EUR-GBP, this pair had a historical price move of parabolic nature, so chances are high that long trend is reversing, but once again, no confirmation yet. Smaller time frame, 4H, has confirmed an intermediate term reversal, and I’ll be using it and 1H chart for future trades. Here I also expect gradual narrowing of daily ranges over next few weeks, but trading opportunities still should remain.

Mike K.