August 25, 2014

GBP/USD Analysis For 25 August 2014

It's a bank holiday here in the UK, which means that I won't be entering any trades today. However before I switch off my computer and have a relaxing day off, I just want to have a quick look at the GBP/USD pair because this is at a critical point right now.

I've written quite a lot about this pair in recent weeks because it's suddenly burst into life. For example, I posted about a downward price breakout when the price broke out of a narrow trading range and headed below 1.6800, and then posted an update about a week later which confirmed that this was a valid breakout.

I then posted this article on 15 August that pointed out that the GBP/USD pair has closed below the 200-day exponential moving average (EMA) for the first time since August last year, which was a very bearish signal, and highlighted the fact that the Marketclub trade triangles had just posted a sell signal on the monthly time frame, which is another really negative signal for this pair.

Well since then this pair has continued to fall as it now trades around 1.6580 and despite numerous indicators indicating that it is heavily oversold, it has yet to bounce back.

Despite the weak signals mentioned above, it's still too early to write off the pound completely and start diving into short positions. It could easily trade sideways for a while and move back up towards 1.6700 in the short-term.

However if the 20 and 50-day EMAs (indicated by the green and red lines) cross below the 200-day EMA, which could happen in the next week or two, then it could easily hit some of the key fibonacci retracement levels at 1.6284 (38.2%) and 1.6003 (50%) in the next few months, and could potentially fall to 1.5722, ie the 61.8% retracement level, looking further ahead.

gbpusd25aug2.png

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