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GBPUSD Confirms Below Ichimoku Ahead of UK Data Dump

By 12/11/2017 No Comments

GBPUSD Strategy:  The GBP/USD pair has confirmed below the Ichimoku cloud on the 4-hour chart and continued down earlier during Tuesday’s Asian session. With the upcoming data-dump coming up today from the UK, and later from the US, we could discover some trading opportunities for short-term traders. Let’s take a look at 3 key points of IDDA technique to discover a potential GBPUSD strategy for forex traders.

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1- GBPUSD Strategy: Technicals

Let’s first look at the pair’s 4-hour chart. From the Ichimoku indicator perspective, the Kijun line has crossed below the Tenkan line. GBP/USD price has crossed below the Ichimoku cloud. However, the Chiko span has yet to cross below the cloud.

The cloud appears to be flat with the future Ichimoku cloud turning bearish.

 

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From another technical perspective, the pair also appears to have formed a Double Top chart pattern. The neckline falls right on the 38% Fibonacci retracement level of 1.3358, which GBP/USD confirmed a break below it on Monday. With this, the next support level falls on the Fibonaccinaci level at 1.33.

GBPUSD Strategy - 4-hour chart Ichimoku Fibonacci Analysis

GBPUSD Strategy – 4-hour chart Ichimoku Fibonacci Analysis

 

This level is especially important because it acted as a strong resistance during October and November 2017.

On the daily chart, the pair remains above the Ichimoku cloud, however, it appears to be pulling back from recent highs at the 1.35 zone after November’s uptrend. The key support level on the daily chart is set at the longer term Fibonacci retracement level at 1.3223.

This brings us to the second point of the IDDA; Fundamental analysis.

2- GBPUSD Fundamental Analysis

UK Side

On the economic calendar on Tuesday, we have the UK Consumer Price Index (NOV). or CPI, out at 9:30 AM GMT.

Headline inflation is expected to hold steady at 3.0% while core inflation could also sit tight at 2.7%. Stronger than expected results, however, could bring up expectations of another BOE hike occurring sooner rather than later.

Next is the jobs data due on December 13, 9:30 am GMT. November claimant count could come in at 0.4K, which would be lower compared to the previous 1.1K gain in joblessness. The average earnings index could improve from 2.2% to 2.5% to reflect faster wage growth and upside inflationary pressure.

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Lastly, we’ve got the U.K. retail sales due on Thursday. Consumer spending is slated to advance by 0.4% in November, which would be a bit higher than the previous month’s 0.3% gain.

Meanwhile, market participants might interpret all the above data in association with Brexit uncertainties.

US Side:

The most highly anticipated event of the week, and maybe even this quarter, is the December FOMC decision. The Fed will be announcing a potential interest rate hike of 0.25%. This has been widely expected by market participants and has been priced in the USD value since late November. So if the Fed acts as expected, there’s a chance of profit-taking during the actual event. Which means drops in the USD and gains in the GBP/USD pair.

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However, traders might be more interested in the updated economic forecasts. The Fed has previously hinted at a weaker inflation outlook. These could shape monetary policy expectations for 2018 as next Fed head Powell takes over the current chair, Janet Yellen.

3- GBPUSD Market Sentiment Analysis

The third point of IDDA looks at market sentiment. On Monday, retail trader data showed 52.3% of traders were net-long the GBP/USD pair. The percentage of traders net-long is now its highest since Nov 13 when GBPUSD traded near 1.31202. The number of traders net-long is 45.7% higher than last week, while the number of traders net-short is 22.9% lower than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. 

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Final Thoughts on GBPUSD Strategy…

As the 4th point of the IDDA technique, you must calculate your risk tolerance before deciding on the investment strategy that is suitable for your portfolio.

While we have strong bearish signals from the technical and market sentiment points, the upcoming economic data makes our bearish outlook a bit trickier. Also, from the Ichimoku point of view, we could expect a retrace up towards the lower band of the cloud before further falls.

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