Jack Sherwin- Aspiring Stock and Forex Market Analyst
I am working to build a published portfolio of stock and forex analysis with Samuel and Co Trading. I will
be posting my analysis weekly, so keep your eyes peeled for my market outlook. I would like to open my
analysis for discussion and feedback from the community.
Cable Review - GBP/USD Hanging In The Balance
Today, I will be exploring the potential opportunities I see presented by GBP/USD over the coming days,
and the contributors to these moves, as well as what I will be looking for before taking this trade. After
having traded the markets for 12 months, I have refined my most profitable pairs down to just two,
Cable (GBP/USD) and USD/CAD. I have found that a balance of technicals, fundamentals and market
sentiment allows me to identify some larger market moves to profit from, as well as stay out of positions
that do not show promise. I always look at the DXY to identify market sentiment as the dollar index is an
indicator of USD strength against 6 major pairs. It is weighted such that the highest volume pair
contributes the most to its value, which is the Euro. Watching the DXY allows me to see which currency
in my chosen pair is the main driver for that day, for example, if I see DXY going up indicating USD
strength and Cable is also going up I know there is more GBP strength on the day.
Looking here at the Dollar index daily chart, we are starting to see an ascending triangle pattern form,
looking like it could be fulfilled in a relatively short time. The ascending triangle is a reversal pattern formed by a resistance level meeting an uptrend that is producing consistent higher lows in price. The
general consensus on this formation is once the trendline is broken, the price is expected the drop to
the lowest low of the trendline, in this case, 93.8. Price is approaching its first support at the 50 EMA.
Once broken we would expect to see a continuation of this decline from the highs of 97.5 towards the
200 EMA and trendline which could be the make or break for this chart pattern. As a round up I see
some downside potential to the dollar so I am looking for long positions on GBP/USD.
Talking triangles again the first thing that jumped out to me looking at this chart is this symmetrical
triangle pattern. Ambiguously, this formation can indicate the continuation of trend or reversal so we
will need to wait for confirmation in either direction before placing a position. As I said, I will be looking
for long positions due to the possible decline in the dollar. Upon a break of the shorter term downtrend,
past patterns show a possible rally back to the year high around the 1.33 resistance level. I would not
imagine this to be a smooth uptrend so after the initial break I will wait for a retracement to enter, and
then wait for further retracements to scale into my position up to the 1.33 handle.
So what is going to make the market move 200 pips from its current position?
UK Market Movers
There is absolutely no doubt that Brexit is a huge catalyst for cable, the most traded GBP pair, and as
you can see from the last month’s chart it has produced significant volatility. However, UK MPs are now
on recess from the 11 - 23 April, opening the market up to be more reactive to economic data releases
such as CPI and retail sales both due to be released later this week. As well as these UK numbers, Cable
should react more to US news and data in the coming weeks as the GBP may cease to be the main driver
of sentiment towards the pair. The main reason being, the Brexit deadline is extended to October which presents a reduction in news flow. The house of commons is taking a 5-week summer recess again
meaning no Brexit discussions in parliament however we can still expect a few headlines to move
markets in this time.
US Market Movers
As I am sure you’re aware, the most heavily weighted US data release is NFP (Non-farm payroll), which is
released on the first Friday of every month. The latest figure released on the 5 April, was 196k vs 175k
consensus illustrating continued employment expansion in the US. However, we do have to look to the
next big data releases such as retail sales coming out on Thursday. Furthermore, we cannot overlook the
POTUS (President of the United States) as a market mover, Donald J Trump, continues to attack the
Federal Reserve’s approach to increasing interest rates, these attacks cause uncertainty and with
uncertainty comes volatility in the US Dollar, which leads to some great trade opportunities.
In conclusion, I will be waiting for some confirmation of the chart patterns I have outlined alongside my
strategy being fulfilled in the next few days to take advantage of this opportunity in the market. I will be
publishing a follow-up report on how this has panned out so do keep your eyes peeled for more content.
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