It has been a tough month for GBPUSD. After losing more than 100 pips for the second week in a row, the pair is now down 400 pips in the month of November.
The break below channel support on November 5th only exacerbated the weakness that has carved out lower highs and lower lows since mid June.
With the pair now trading just a handful of pips above the current November low, the potential for a move to levels that haven’t been seen since April looks promising.
The level in focus is 1.4980, an area that acted as strong resistance between March and April of this year. It should therefore attract a strong bid on a retest as new support.
However, the weakness that has been in place for the last five months will keep me off of the bullish bandwagon for now. Although we could see a bounce from this level, any buying from here would technically be against the grain and may not garner much follow-through.
A more favorable approach, in my opinion, is to wait for a close below 1.4980. Such a close would give traders a chance to watch for a selling opportunity on a retest of the level as new resistance.
The next support level below 1.4980 doesn’t come in until 1.4740, giving us a 240 pip range to work with. A precise entry should allow for a 3R profit potential, at minimum.
Of course this trade idea only becomes valid on a daily close below the next support level at 1.4980. Anything outside of that will keep me on the sidelines.