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GBP/USD: 2 Reasons Why 1.38 is the Level to Watch

Last updated 3/3/2009 1:56 PM EST (GMT -5) 0 Comments - Add your comment

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FX360 Technical Analyst Staff

Technical Analyst, GFT

In last Wednesday's technical feature (Feb. 25, 2009, " How Low Will the GBP-USD Go? ") we discussed how a break below previously established support near 1.4100 could spark further loses down to Fibonacci support near 1.3800-.3750. Well, the GBP/USD did in fact manage to close below that 1.4100 barrier not only bringing this next level of Fib support into play, but also providing us with a potential buying opportunity off a bullish Gartley pattern (reason 1, see daily chart) as well as a bullish butterfly pattern (reason 2, see 8hr chart).

This pattern is a bit looser in terms of convergence than we would ideally like to see, so we will monitor price activity prior to entry. Based on current price action, we are anticipating 1.3825 as the buy entry--just above 78.6% daily support. However, the daily AB=CD pattern is projected to complete between 78.6% and 88% of X1-A so there may be an opportunity to scale into this trade around 1.3750.

Targets are currently set just below 38.2% and 61.8% of the projected CD leg at 1.4031 (T1) and 1.4295 (T2), respectively. As always, we will watch out for any gaps and/or wide-ranging candles prior to the anticipated entry as these often suggest a strong continuation may be in progress thus increasing the odds of pattern failure. Lastly, we may look to take full profits at T1 since this is a counter-trend opportunity, but we will need to assess the price action if this trade is triggered.

Stay tuned...we will keep you posted as this trade develops.....

Daily Chart - Bullish Gartley pattern projected to complete near point D between 78.6% and 88% Fibonacci support of X1-A	8hr Chart - Bullish butterfly pattern also projected to complete near 127.2% and 161.8% Fibonacci support of X2-A

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