GBPUSD weekly forecast 16 Jul 2016
Volatility of Gbpusd has been through the roof. The cable easily gallops 500 pips back and forth in a matter of few hours. Of course the volatility is good for traders. But is it really a good thing when the price is artificially sustained in a low-liquidity environment? I don’t think so. So the best trade in these market conditions, is a no-trade for me.
14 day ATR on a Daily chart was reading at 202 pips at the end of last week. Ok, it could be the spillovers from the Brexit. But the more important observation was in the charts H4 and below. Because the ATR was in the rise for the last couple of weeks. Which means there is something else going on, other than the aftershock of Brexit.
Final reading of ATR on the H4 was 107 pips. Considering it the average of 14 periods, it is quite difficult to trade safe. Trading does involve a fair share of risk-taking. But we have to be aware of certain changes in the market in order to adapt our trading accordingly e.g. entry, exit, stoploss and risk appetite etc.
Bearish forecast of last week…
As expected the Gbpusd started to break out of the short term structure for a bearish move, but the price did not last for too long below the structure. So there was a bullish rally (still corrective) for most part of the week, recovering some pips from the shock and aftershock of Brexit.
I certainly covered my short term short position for a break-even trade, when there was a sudden spike as the corrective-bullish-wave was starting to form. Hence the Elliott wave analysis and the count is now slightly changed from last week. In fact the count is still the same. The only adjustment is that the wave 5 of the Primary degree is marked as complete at the previous low. Whereas last week we were expecting another small push to create a lower low as the fifth wave.
So the red arrow forecast is not valid anymore. At least for now. Because the current wave count forecasts the start of the 4th wave in the Cycle degree. Ultimately the overall 5-wave impulse of the Cycle degree would be the C wave of the Supercycle. If you are confused or need more info please refer to the image below. Alternatively you may read – the complete GBPUSD Elliott wave forecast or my last week’s – weekly outlook for gbp.
GBPUSD Daily chart – long term outlook
Ok, the wave 4 does not have to be the same pattern as per the image. But its very likely to be a Flat (similar to the image) or a triangle. Although statistically, alternation of wave 2 and 4 is somewhat questionable (especially in forex market,) I would like to strictly base my forecasts on guidelines of the Elliott wave principle. Therefore alternation is considered when forecasting. So if the correction is a pattern other than a Flat or a triangle, it does not make a difference in day to day trading.
However It is important to note that price is likely to range between the fib lines as drawn in the image. Since this is a weekly forecast, it may be useful to take a look at shorter timeframes.
Short term forecast of the Cable
This is not a trade signal. Just my opinion where the price is likely to go. However there are some strong indications to support a bullish bias. MACD divergence, 50% fibonacci retracement and a countable preceding 8-wave structure (5-wave impulse followed by a 3-wave correction.) So the price may be within or at the end of a B wave in the Intermediate degree. But its too early to conclude as an ongoing ABC correction.
Surely there will be clues in the next few trading days as to what type of a corrective pattern is in the making as the 4th wave of the Cycle degree. If you must trade the Cable next week, look for buy opportunities. Most probably an impulsive bullish wave will mark the ceiling level for the overall correction.