The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBP FX Strategy

Prior to the French elections we misjudged the impact of the polls on the market. We did not expect early elections polls that were released 2 – 3 months prior to the elections date to have a significant effect on numerous currency pairs in the Foreign Exchange (Forex) market. As a result it has triggered fairly negative fluctuations in our signals performance as we often intertwine the technical and fundamental end of the market into our analysis.

Although we are certain GBP selling on Friday was also due to weak Gross Domestic Product (GDP) figures, the latest UK elections polls that displayed the Conservatives are losing their lead may have catalyzed the selling pressure that was well-noted in GBP currency pairs and crosses across the FX board.

We have mentioned a month ago that the UK elections may constitute as a second brexit referendum. Based on the Labour party’s manifesto it appears the party has accepted the fact the UK will exit the EU but promise to do so with a deal that will be struck via negotiations. By projecting to the EU you are desperate for a deal to avoid a hard brexit has its disadvantages.

The EU may have the upper hand when the negotiations commence and pressure Jeremy Corbyn to accept their propositions. The market has the tendency to prefer stability. which may explain why GBP was sold as the polls showed Theresa May lead is beginning to contract.

We therefore expect the UK elections polls to play a major role in GBP upcoming trend. We are unable to determine the magnitude of the volatility that may be seen prior to the elections but we are anticipating GBP volatility to increase once the brexit negotiations begin.

GBPUSD Technical Analysis

From a technical angle GBPUSD is at a technical crossroad. The technical structure is simple as we noted in the market prior to the US elections, which we have capitalized on successfully (US Elections 2016 Strategy) as well as the brexit as we initiated short GBP trades in the market.

GBPUSD Weekly Chart

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPUSD Weekly Chart 28/05/17

We have spotted the reversed H&S including the break above the neckline but were unable to fully capitalize over GBP rally in our past signals. Based on the current chat we note that the objective of the initial reversed H&S (1.3320) has yet to be met. The second reversed H&S that is being developed increases the possibility 1.3320 may be reached by the market but there are 2 potential entry levels to establish a long trade in the market.

The first technical level is around market price. 1.2770 may act as a firm support where a break above the initial resistance (upper blue line) may pave the way for a stronger rally, targeting 1.3320. The second potential entry is at a lower price (around 1.2500). A dip towards 1.2500 may strengthen the case a much stronger rally is due but we cannot determine whether it will be reached as 1.2770 may hold.

We have observed GBP pairs and crosses intraday time frames in an effort to establish whether GBP is indeed due to post corrective gains or 1.2500 will be tested by the market. At the end of our analysis we concluded that GBP may be due for a bullish retracement to Friday’s selling, however, this may very well evolve into temporary gains. GBP may require to break above key intrday price levels in order to suggest we may be in front of a stronger recovery.

GBP currency pairs we may focus on are GBPCAD, GBPNZD, GBPUSD and GBPCHF. From a technical angle we are avoiding EURGBP, GBPAUD and GBPJPY. We may opt for either of the above pairs depending on the potential gap that may occur at the opening of the Forex market and the size of the stop. Aside GBPUSD, the other crosses are intraday entries.

One of the decisions we will have to make is whether we wish to layer an intraday or a weekly take profit order, which will assume GBP will correct higher from current levels without retracing lower based on GBPUSD (The Fed monetary policy is due after the UK elections, which may suggest the key currency is GBP rather than USD).

To simplify, one strategy may be to long GBP via an intraday time frames and target and then seek a short entry or layer a higher take profit order and allow the trades to float in the market. We are not listing the intraday strategies for GBPCAD, GBPNZD and GBPCHF as a significant bearish gap at the opening may invalidate the entries. We will wait for the opening and determine how we wish to proceed with our signals.

In regards to other currencies, there are very-early indications that may suggest the Japanese yen (JPY) is due to strengthen, however, not at current at levels. The New Zealand Dollar (NZD) rally may be fading but similar to JPY, we will simply monitor these currencies for the time being.

UK Elections Forecast

Based on GBPUSD current weekly chart, if 1.2770 acts as the key support and the price breaks above the upper resistance prior to the UK elections it may act as an indication Theresa May is due to win the elections. If minor gains are noted in GBPUSD or a firm break below 1.2270 (weekly close) it may suggest Labour will either win the elections or garner more sits than initially expected. The UK elections are due to take place on 8 June (Thursday), 2017.

Note: In an event a moderate bearish gap is noted in GBP pairs and crosses we will re-assess our position and issue an update via email.

GBPCAD Trade Alert

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPCAD 4hr Chart 28/05/17

GBPCAD long at market price (1.7223)
Take profit: 1.7550
Protective stop: 1.7085
Risk Ratio (RR): 1 : 2.5 (approx.)
Estimated duration: 10 days

Note: We are opting for a larger take profit although it is significantly lower than its technical target. We may increase our exposure to GBP if we are convinced the odds of a lower re-test has been substantially reduced as noted in the strategy. Should GBPCAD correct higher and stall around 1.7375 we may exit the trade. The potential drawdown is a re-test of 1.7178.

29/05/17 UPDATE: GBPCAD is trading at 1.7279 at the time of this writing.

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPCAD 4hr Chart 29/05/17

We are closing 20% of the long trade at market price and shift the protective stop to 1.7227. The stop is shifted prior to the daily close as it is a 4hr entry.

GBPCHF Trade Alert

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPCHF 4hr Chart 29/05/17

We decided to increase our exposure to GBP. This is a fairly risky maneuver as we are layering a tight stop after some corrective gains already took place in GBPCHF, which increases the odds for a limited drawdown. We reduced our exposure in GBPCAD and find GBPCHF to be the most appropriate cross.

GBPCHF long at market price (1.2512)
Take profit: 1.2720
Protective stop: 1.2438
Risk Ratio (RR): 1 : 2.5 (approx.)
Estimated duration: 7 days

Note: This is a 4hr entry.

29/05/17 UPDATE II: GBPCHF is trading at 1.2537 at the time of this writing, we are closing 20% of the long trade at market price.

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPCHF 4hr Chart II 29/05/17

4hr entries are managed differently than daily or weekly entries.We may issue an update prior to the daily close to temporarily widen the stops.

29/05/17 UPDATE III: We are shifting GBPCAD protective stop back to 1.7227,  GBPCHF protective stop is shifted to 1.2530. We are relatively close to the market in both trades as these are 4hr entries.

30/05/17 UPDATE: GBPCAD is trading at 1.7318 at the time of this writing, we are closing 30% of the long trade at market price and shift the protective stop to 1.7243.

GBPCHF triggered the protective stop at 1.2530, we have ended the trade with a minor profit.

30/05/17 UPDATE II: This is a fairly tough decision to make but as the price was within a near proximity to 1.7375 we are closing 20% of the long trade at market price(1.7357) and shift the protective stop to 1.7287.

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPCAD 4hr Chart 30/05/17

We would like to highlight GBPCAD can still break above 1.7375 but we are not a adopting a wait-and-see approach.

30/05/17 UPDATE III: GBPCAD triggered the protective stop 1.7287, we have ended the trade with a decent profit.

GBPUSD Trade Alert

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPUSD 60min Chart 30/05/17

We will first begin by emphasizing we are taking a risk by initiating a long trade in GBPUSD. This is an hourly with a relatively tight stop. If the gains do not materialize within 24 hours there is a fair chance it may trigger the stop.

GBPUSD long at market price (1.2848)
Take profit: 1.3040
Protective stop: 1.2810
Risk Ratio (RR): 1 : 5 (approx.)
Estimated duration: 7 days

Note: Should GBPUSD reach 1.2930 and stall we will exit the trade.

30/05/17 UPDATE IV: A new UK elections poll along with suggestions the Conservatives majority will narrow triggered heavy selling in GBP pairs and crosses. We have tightened the stop to 1.2820 as GBPUSD corrected higher, the stop was triggered in light of the recent selling. We knew the risk of initiating a long trade.

GBAUD Trade Alert

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPAUD Daily Chart 31/05/17

GBPAUD short at market price (1.7339)
Take profit: 1.6940
Protective stop: 1.7490
Risk Ratio (RR): 1 : 2.8 (approx.)
Estimated duration: 7 days

We are continuing to focus on GBP. As we would like to be transparent in our analysis we have a choice between short EURGBP (monthly) and short GBPAUD (daily). The entries may not necessarily conflict each other in the near term. One of the aspects we analyze is the potential drawdown. The potential drawdown for GBPAUD is +100 pips (approx,), in EURGBP it is +75 pips (approx,). The potential drawdown is almost identical.

This is not a trade we are likely to roll into the UK elections on 8 June. The Australian economic data that is due during the Asian session and the UK Manufacturing PMI that is due tomorrow are the key risk events. We would rather see a weak manufacturing data.

GBPJPY Trade Alert

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPJPY Daily Chart 01/06/17

GBPJPY short at market price (143.47)
Take profit: 138.50
Protective stop: 145.60
Risk Ratio (RR): 1 : 2.4 (approx.)
Estimated duration: 7 days

Note: We did consider a sell limit order we noted a resistance level is nearby (143.68). There is no technical evidence that support a strong JPY at the time of this writing, we are expecting the weakness to steam from GBP. We will shortly update the trade alert on the website.

02/06/17 UPDATE: GBPJPY is trading at 142.52 at the time of this writing, we are closing 20% of the short trade at market price.

04/06/17 UPDATE: We decided to close GBPJPY short trade at market price (141.98).

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The Weekly Update: GBPUSD Technical Crossroad Ahead of the Elections

GBPJPY Daily Chart 04/06/17

We will consider how we wish to proceed with GBP on Monday. This was another tough decision but we see no indication of a risk aversion mode in the market and cannot assume it will be limited to GBP.

Should we decide to continue trading GBP we will present our strategy in a separate page.

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