As we had suggested yesterday, the GBPUSD is now finding some support. Any rally from here could be short-lived, however. The break of the strong 1.3730 support has switched the pair into a short-term bearish mode and subsequently, any rally may not hold.
A move back into the 1.37s or 1.38 region could set up a shorting opportunity. We should look to trade a possible short if a strong bearish signal on the 4-hour chart eventuates.
Bullish Medium-Term Bias
Our medium-term bias remains bullish. We are at a strong uptrend from the sub-1.20 low following Brexit. This can be seen on the chart below. We have identified the green area as a possible opportunity to go long should a reversal be signaled there.
This area has strong confluence of support. It is the base of the uptrend as well as horizontal support
Again, we want to look for a very strong 4-hour reversal or on the daily. The reversal on the daily does not have to be as bullish as the 4-hour to indicate possibility of a strong reversal since there is lot of confluence of support there.
If we do get a reversal signal in the 1.34 to 1.35 region, we should really be a looking for at least a profit target of 1:3 or even 1:4. These opportunies are few and far and should not waste them by booking profit early. We will go long on the candle that follows the reversal candle (the candle that indicates the reversal). We should let it retrace about half way or below halfway the reversal candle before we go long. This would allow us to set a stop just below the candle that indicates the reversal.
The reversal should be marked by either a candle with a long bottom wick or an engulfing candle that covers much or all of the previous candle
Alternatively, we could go long at the break of the reversal candle. However, this would require a larger stop since the stop-loss would be placed at same location.