GBPUSD Congestion Sets the Stage For a Breakout

[B]My picks:[/B] GBPUSD
[B]Expertise:[/B] Combining Money Management with Technical and Fundamental Analysis
[B]Average Time Frame of Trades:[/B] 3 days to 1 week

The British pound has been a difficult currency to work with over the past few weeks. Congestion has been common place; but false breakouts interspersed in this time frame have kept range traders from having an easy time. Looking to my setup from last week, I would have been entered on the short EURGBP today had my conditions for clearing my open orders not have been met. This pair has been on a general, bearish slant for some months now; but consistent momentum has been difficult to come by. On a fourth consecutive daily decline, I was looking short entry; but did not want to chase price (a rebound before continuation often generats better follow through). However, if the market moved too far, the nature of the trade would trade; so a cut out at 0.84 was put in. My orders have been negated; but the trend continuation scenario could still work. Nonetheless, I am staying away from this due to the euro’s recent chop.

Instead this week, I am looking at the majors. GBPUSD has been set to congestion for nearly two weeks now. In that time, we have seen a lower swing high on a double top to 1.6520. Congestion has now defined consistent boundaries between 1.62 and 1.65. This will not last long. The market will find trend once again; but direction is not guaranteed. Looking for a particular driver for a breakout, the economic docket from both sides is lacking. What’s more, there are no clear events scheduled that could stir up enough sentiment to trigger risk appetite or aversion moves. A fundamental shift will likely come from policy efforts from the government or central bank officials on either side of the ocean - something that cannot be benchmarked. Regardless of the catalyst though, the levels are clear. The aforementioned range is my immediate interest. The general trend is bullish; but a break lower has the better probabilities in my eyes. A bearish break has room to retrace a three-month 2,800 pip rally. My signal for entry will be a medium time frame candle (60 or 240-minute) close below support at 1.6200/175. This level is defined by the range low, a 50% Fib of the Jun 8th to 11th advance, 20-day SMA and rising trend from late April. A cautious stop would be above the range top but that would require significant position size adjustment to reduce notional risk. Depending on momentum, a smaller stop would likely suffice. My first target will equal risk and the second will look for the first major retracement level of the last significant bull wave at 1.5525.