FxWirePro: Cable shrug-off bullish engulfing, bears heading towards falling wedge – Trade tunnel spreads and uphold short hedges

Although GBPUSD sees some mild rally today, bears have been shrugging-off bullish engulfing pattern at 1.3171 levels.

In the minor trend, the pair was sliding through falling wedge so far which was bearish in nature, the prevailing interim upswings are likely to restrain below 7 & 21-DMA levels.

For now, the breach below wedge resistance is most likely to bring in more slumps as both leading and lagging indicators are bearish bias.

Cable prices are finding some two-way price action around 1.2900 with divergence in the intra-day studies we highlighted yesterday now unwinding. 

However, a rally back through resistance at 1.2960, 1.3000 and 1.3040 is needed to alleviate underlying bear pressure and suggest this week’s break of range supports is a false one. While under those levels risks remain for a further extension towards next key support in the 1.2825-1.2775 support region. A break there does a lot of technical damage to our more constructive longer-term outlook.

On a broader perspective, the long-term analysis remains constructive, but a move above 1.3400 is needed to give us the higher conviction that 1.2480 was a major low and we move into an upper range under 1.4500 levels.

However, the major downtrend has now resumed (refer monthly plotting), slumps below EMAs are on the verge of retracing 61.8% Fibonacci levels as both leading and lagging indicators on this timeframe are also in tandem with the selling sentiments & bearish EMA crossover.

Trading tips: Contemplating above technical rationale coupled with the UK’s disappointing GDP prints (-0.1%), if the bearish sentiments sustain, then, bears are most likely to drag further dips up to 1.2967 levels. Thus, at spot reference: 1.3025 levels, one-touch put option strategy is advocated, using lower strikes at 1.2990 levels.

The trading strategy likely to fetch leveraged yields that would be exponential than spot trades when the forward FX prices keep sliding further up to lower strikes on the expiration.

Short hedge: Alternatively, on hedging grounds ahead of US CPI prints, long-term investors are advised to stay short in futures contracts of mid-month tenors. The writers of the futures contract are expected to maintain margins in order to open and maintain a short futures position.

Currency Strength Index: FxWirePro's hourly GBP spot index is inching towards -78 levels (which is bearish), while hourly USD spot index was at -84 (bearish) while articulating (at 10:44 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex