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Pound-Dollar Observation Continues


Forex Diva is especially excited today because yesterday's prediction of the movement of British pound against US dollar (GBP/USD) was correct. Despite what most other male analysts were saying elsewhere, the 50% Fibonacci level didn’t hold and Pound-Dollar candles are on a rise. Now the question is, should we be expecting a rise all the way to the 61.8% Fib level? Let’s do our infamous Diamond Analysis.

Invest Diva Diamond Analysis

Technical Point

4- Hour Chart

Forex Diva is getting help from two indicators on the 4-hour chart: The Bollinger band and the RSI (Relative Strength Index) because these indicators usually work best with shorter time frames. It seems that the pair entered the overbought zone in the RSI this morning, therefor the prices started to go back down.

Same thing with the Bollinger Bands. We know that under normal conditions, we will almost always find the pair within the bands, and more specifically they tend to return to the middle of the bands. This morning the pair reached the upper band at 1.58069 and then bounced back down. For those of you who were up this morning and sold the pair, GOOD JOB DIVAS!

[caption id="attachment_655" align="alignnone" width="500"]GBP/USD Technical Analysis 4 hour chart British Pound US Dollar (GBPUSD) 4 Hour Chart, August 22, 2012[/caption]

But I recommend not to bet on too much of a drop for the pair, and probably set your somewhere around the middle band of the Bollinger band, say 1.574? For the reason behind what I just said, read the rest of the article.

Daily Chart

Not only the daily candles broke above the 50% Fib level, but they also broke above the upper band of the Ichimoku cloud. Now this is can be bullish! Just to make sure, I also took a look at the daily RSI, and it is in the neutral area, slightly aiming towards the oversold zone. What does this tell me? That the prices have a chance of getting higher, but not too higher. I think I will aim for a hold at 61.8% Fib level at 1.59103 to sell the pair, and set my stop (always set you stop!) to dynamically follow the movements around 50% fib level and below. We never want to be greedy, right?

[caption id="attachment_656" align="alignnone" width="500"]GBPUSD technical analysis with Fibonacci, Ichimoku, RSI British Pound US Dollar (GBPUSD) Daily Chart - Fibonacci, Ichimoku, RSI, August 22, 2012[/caption]

But hold on. Never place an order before carefully analyzing all 4 points of Forex Diva Diamond Strategy.

Fundamental Point

British Pound (GBP)

On Thursday we have two fundamental events that can move the British pound:

1) British Banker’s Association (BBA) Mortgage Approvals: The forecast for BBA currently stands at 28.2 K. If tomorrow’s number is larger than this forecast, we could expect more GBP gains

2) Confederation of British industry (CBI): The forecast for CBI is 16. If tomorrow’s number is larger than 16, we could expect more GBP gains.

Previous numbers of both reports have been lower than expected.

US Dollar (USD)

1) Today we have a major influential event coming up: the Federal Open Market Committee (FOMC), where the Federal Reserve provides in-depth insights into the economic and financial conditions that influences their vote on where to set the interest rates. And we all know that interest rates are the hottest topic in the forex world.

So I took a look at the U.S. Dollar Index (USDOLLAR) and noticed that it is on an overall down trend. David Song, a currency analysts at DailyFX expects the Fed to “talk down speculation for QU3” and sees USD gains during the North American trade.

2) On Thursday we have another major event that can move the US dollar: The Unemployment Claims report. This weekly report gives us a general view of the US economy’s health. Recently the numbers have been larger than forecast, which is bad for the US dollar. If this happens again tomorrow, we can expect more losses in the US dollar which will lead to a drop in GBP/USD.

Sentimental Point

Now let’s take a look at the market sentiment. What are other traders thinking and how are they trading the GBP/USD? To know the answer, I referred to the SSI (Speculative Sentiment Index) and found out that today nearly 69% of traders have sold GBP/USD. Now, 69% isn’t a very strong ration, but as a contrarian indicator, the SSI is signaling more gains in the pair.


Overall/ Capital Points

Putting it all together, Forex Diva expects a near-term gain in GBP/USD, which will be followed by a drop.

Things to check before placing a potential sell order at 61.8% Fib level:

- The spread of GBP/USD with your broker (don’t place a trade if it is too wide)

- The amount you are willing to risk losing

- The leverage based on the amount of your disposable money

- Set the stop without being greedy

Happy trading!

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