Only last week, I posted about a piece about possible upside resolution to the recent sideways price action in GBP/USD (Can be seen here). My assumption, was concerning the breakout which I had assumed was a continuation breakout, I had believed that the move was the start to a move higher which would fulfil a earlier forecast I had made from late last year. Now I am doing an abrupt about-turn.
The failure of the upside breakout as caused me to reconsider my forecast for GBP/USD. It would appear that the market may have rejected the upside breakout, though this has not yet been confirmed technically, - Having looked at the weekly chart, it is clear we have been stuck inside a 'malaise' on this pair. I have cast my mind back to some similar periods where I have seen this sort of malaise on currency pairs (For the purpose of this article I would define a 'Malaise' as a period of relative inaction highlighted by mostly sideways movement and small-bodied candles, even though the candle wicks may spike higher or low).
The price action I am talking about sees the malaise set in for a few weeks following a consistent uptrend. The malaise is finally followed by a breakout to the upside but this is rapidly rejected. The market then goes into reverse of the prior strong trend, and starts to head in a countertrend move. - I have posted a couple of past examples of this below. The first one directly below is the EUR/USD in 2010:
The next example comes from EURCHF in 2004:
Now here is the current GBPUSD weekly chart:
The situation shows many similarities with lots of downside 'potential'. I am not going to dwell on the fundamental situation, no doubt the fundamental situation was very different in each case. IF we get some follow-through this week on Cable or next, we could see the start of a sharp correction. If indeed it does happen, I would expect it to unfold as a sharp move to near 1.6000 (Though it may extend to 1.5800), then a rebound possibly back to around 1.62/1.63, then a more serious move lower to at least the mid-1.50s and possibly the low 1.50s.
Of course usual caveats apply: 'There are no guarantees': The market could continue sideways, move higher, or breakdown then fail. - But as a risk reward trade I think it presents a nice set-up, which could be entered as a small trade and added to if it follows through, with some good upside reward potential.
* (Additional note: In the time between me putting this piece together and this update an hour later the market has moved from 1.6515 to 1.6450).