By Kathryn James
With the markets flipping direction daily and volatility still at the fore, I felt compelled to do an update on yesterday’s analysis on cable (GBP/USD). I mentioned yesterday that cable was showing signs of strength on the short term hourly chart and looked to be breaking free from the downtrend on the daily chart. I was hoping to use this strength to sell into and capture a trade on the longer-term trend of cable – which is down. Unfortunately the currency pair reversed sharply and doesn’t look to be offering that opportunity as caution remains high. It is now trading below the head on the hourly inverse head and shoulders pattern and has gone back below the downtrend line on the daily chart. It’s a good example of a failed pattern and trend reversal and false breakout. (See chart below)
By adopting the strategy of waiting to trade the strongest trend, as confirmed by the longer term weekly chart, I made sure my fingers didn’t get burned by not going long. Confirmation of the strength behind this trend can be viewed (in reverse) on the US Dollar cash index chart, the index broke the neckline of a long-term inverse head and shoulders pattern in May - this was tested in recent weeks where the support line held, a rally ensued followed by a move to new highs. A series of higher highs and higher lows are clearly defined on the weekly chart as the broader trend continues to push the index closer to 90. The trend is becoming well-established and looks poised to challenge fresh highs.