FxWirePro: Shooting star pops at Cable’s channel resistance – Trade tunnel spread and short hedge as major downtrend resumes with bearish crossover

Although the cable extended a comprehensive recoveries last weekend, the sharp shooting star pattern candle pops up exactly at channel resistance (refer daily chart), while momentum oscillators also signal weakness in the prevailing price dips on this timeframe. As a result, the current price hovering at 7DMA to slide below.

The pullbacks during last weekend held the 1.3028 region, which is the ideal area for a lower high to develop and most importantly, that’s where downward trend-line is formed. The prices, for now, are nudging downwards 1.2905 (7DMA levels) where is the key support levels are observed, for the next key target at 1.2858 (21DMA levels). 

A drop back through there would signal 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 below 21-EMA levels after shooting star patterns (refer weekly chart), 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 which is now broken decisively, 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: 1.2910 levels, it is advisable to buy tunnel option spread, use upper strikes at 1.2945 and lower strikes at 1.2858 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 79 levels (which is bullish), while hourly USD spot index was at -18 (mildly bearish) while articulating at (06:06 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex