FxWirePro: GBP/USD bullish engulfing pattern signifies bulls’ trend-line support, major trend still vulnerable – Trade one-touch calls and short hedge

The cable extended a comprehensive recovery, although appears to be minor that we have seen over the last couple of days, the bullish engulfing pattern candles pop up on this pair at trend-line support (refer 2H chart), while momentum oscillators also signal strength in the prevailing rallies on this timeframe.

The pullbacks yesterday held the 1.3070/40 region, which is the ideal area for a higher low to develop and most importantly, that’s where upward trend-line is formed. The prices, for now, are nudging upwards 1.3250-1.3310 levels where is the key resistance levels are observed, with the key intra-day support at 1.3130 (21SMA) and 1.3070 areas.

A drop back through there would signal we remain in a lower range and risk another new marginal low as the momentum oscillator (stochastic curves) have entered in overbought territory.

Contrary to this bearish stance, we look ahead for a break of highlighted resistance to confirm a short-term low is finally in place for a move up beyond 1.33 levels. We will then be looking for a medium-term range to develop.

On a broader perspective, we reckon that the bear cycle that started back in 2007 at 2.1160 completed at 1.1490. But on medium-term basis, the sentiments are still fragile as the bears of this pair have managed to breach channel support after 3-black crow patterns, consequently, evidences equi-distant slumps (refer weekly plotting), while both leading and lagging indicators in tandem with price dips on this timeframe. The strong support zone is observed at 1.3050 levels, if it holds, on a multi-year basis, this suggests mean reversion back to 1.50-1.60. Otherwise, more dips likely on bearish EMA and MACD crossovers.

Trade tips: On trading perspective, at spot reference: 1.3157 levels, it is advisable to buy the one-touch call option, use strikes at 1.3175 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps spiking further until expiry duration.

Alternatively, deploy shorts in futures contracts of mid-month tenors with a view to arresting potential dips.

Currency Strength Index: FxWirePro's hourly GBP spot index is flashing at 135 levels (which is bullish), while hourly USD spot index was at -68 (bearish) while articulating at (11:38 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

The current currency indices are also conducive to above-advised call options.