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GBP/USD Diamond Analysis


Jan.28.2014

Oh. Hi. Mr. U.K. and Ms. USA have caught my eyes today. Here is your 360 Invest Diva Diamond Analysis.

Fundamental Points

As the British woke up this morning at 9:30 AM GMT, their country’s Gross Domestic Product (GDP) rose 0.7% in fourth quarter as expected. This basically means the UK economy is doing well, but traders seem to be having a hard time expressing their reaction to the news through the UK stock market, as tomorrow's Fed decision on tapering is seen a more influential for equities overall.

Technical Points

So the question is, “Is Cable’s uptrend mature yet?!”

If you have graduated Invest Diva’s Education Course, you’d know that Cable is the forex geek name for the British pound. Despite a rise in UK GDP, we didn’t see a jump in GBP/USD. The pair has been dancing on an overall uptrend on the daily dance floor* since July 9th, 2013, breaking a number of resistance levels, the latest being last week where the pair touched 1.6636 but then bounced right back down. That was when a major Bearish Engulfing happened on the candle-chart; a bearish reversal pattern which happens during an uptrend and indicates that the uptrend may be getting weak, the bears are in control, and the prices may start falling.

GBPUSD Uptrend Bearish Engulfing daily chart forex

 

As far as the MACD study goes, on the 8-hour dance floor, the MACD line which is shown in red has recently crossed the blue signal line on a downward movement and there is a negative divergence which could also indicate that the uptrend is getting weaker.

GBPUSD MACD 8 hour chart forex

 

On a monthly basis however, you’ll notice that the pair is moving towards a three-year resistance level. Is the naughty pair able to pierce through this level after so many years? A break above this level could open doors for more gains in GBP/USD value, while failure to break this hard-core resistance level will only make it stronger. Yep, Kelly Clarkson even dedicated a whole song to this: what doesn’t kill you makes you stronger.

GBPUSD Resistance Monthly Chart forex technical analysis

Sentiment Points

As we touched briefly on the technical point, the bullish sentiment is tiring out, and many retail traders seem to be aware of this fact because only 19% of traders on one of the major brokers are long GBP/USD. Ironically, most traders in the forex world are usually wrong! That’s why we can sometimes use this as a contrarian indicator to price action. The fact that the majority of traders are short gives signal that the GBPUSD may continue higher. The trading crowd has grown further net-short from yesterday and last week. The combination of current sentiment and recent changes gives a further bullish trading bias.

 

Overall Points

As you may have noticed, we are getting mixed signals for GBP/USD so I certainly will keep an eye on the pair but won’t make a final trading decision unless all of the above Diamond points confirm and point me to the same market direction.

 

* “Forex dance floor” is an Invest Diva metaphor used both in the book Invest Diva’s Guide to Making Money in Forex published by McGraw-Hill, and the Forex Coffee Break with Invest Diva’s education courses.

 

Kiana Danial Invest Diva Modern wall street

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