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GBPUSD continues to coil for what could be an aggressive breakout.
The consolidation pattern you see in the chart below has formed a wedge. I mentioned this narrowing price action on Monday.
Usually, the longer a market takes to break from a terminal pattern such as this, the more explosive the breakout is likely to be.
A terminal pattern is one that must conclude relatively soon such as a wedge.
You can see where our trend line resistance came into play yesterday. Today’s session is also having trouble in that 1.2785 area.
The 4-hour chart shows it best.
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But remember what I wrote on Monday.
Although I’m showing this wedge on a 4-hour time frame, it’s going to take a daily close below or above support or resistance respectively.
By “daily close” I’m referring to the New York 5 pm EST close. You can go here to get access to these charts which are essential for trading price action.
Why am I requiring a daily close beyond one of these levels?
My reasoning is two-fold.
First is the fact that 1.2700 has been range support since mid-August. A level that significant often requires a daily close beyond it to confirm the breakout.
The second reason has to do with pound volatility. The constant flow of Brexit news—most of which is unscheduled—has the potential to disrupt the technicals.
By waiting for the day to close beyond this wedge, I can remove much of the “noise” that often leads to false breaks.
Just ask anyone who didn’t use this rule earlier today when the 4-hour chart closed below 1.2700.
Hours later, GBPUSD was higher by more than 100 pips.
So you see, this level is not being respected on a 4-hour closing basis. It’s going to take a 5 pm EST close below it to get the job done.
The same goes for trend line resistance.
It’s still a waiting game for now. But so far, the technicals are playing out exactly as I expected they might.
And both sides are evenly matched at the moment.
However, the terminal nature of this pattern will force GBPUSD out of its comfort zone within days.
A daily close above trend line resistance would expose 1.2880 followed by 1.3070.
It may even be enough to resume this 560-pip range and re-expose the 1.3260 resistance area
Alternatively, a daily close below 1.2700 would target 1.2570 followed by 1.2410.
Justin Bennett is an internationally recognized Forex trader with 10+ years of experience. He's been interviewed by Stocks & Commodities Magazine as a featured trader for the month and is mentioned weekly by Forex Factory next to publications from CNN and Bloomberg. Justin created Daily Price Action in 2014 and has since grown the monthly readership to over 100,000 Forex traders and has personally mentored more than 3,000 students.Read more...
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