FX Technical Analysis

Tuesday, June 18, 2013, Marketing Communication GBPUSD, Daily In Q1 cable fell from its highs of 1.63 down to under 1.5. Following this fall the currency broke the negative trend in early April, and rallied to the 50% retracement area, middle red line, where it succumbed to resistance. The recent leg higher has brought cable up to the 61.8% retracement level. This attempted rally has formed a bullish trading range red region. However while the near term trend looks to have turned positive the price action does look vulnerable to a leg lower within this range. The stochastic has moved to overbought conditions and does look to be preparing for a turn lower. So due to the overbought nature of the recent move and proximity of the significant 61.8% retracement cable does look set for some weakness ahead. A return move to the 50% area at 1.5570 seems probable in the coming days, and even the 38.2% level at 1.5396 is within range. The trend has turned over the summer so traders over the short-to-medium term timescale should now look to buy oversold areas rather than attempt to short overbought areas. GBPUSD, 4hr Over the 4 hr timescale we can see the last leg higher in more detail. The stochastic over this timescale describes clear divergence, black lines, where price action has been posting higher highs while the stochastic has not. This is also mirrored by the RSI Failure Swing. Following the support found just above 1.50 cable had posted a decent trend higher, however this has recently been broken, so in conjunction with the oscillator divergence the 4 hour chart does seem to be backing up the daily chart view that cable is looking vulnerable to some weakness in the days ahead. 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