Technicals and FxWirePro Derivatives Trading Setup: GBP/USD bulls take-off on hammers and major downtrend remains intact
Although GBPUSD sees some mild rally today, the trend is currently drifting in sideways at 1.2723 levels.
Market profile on 4H:
Point of control (PoC) is at 1.2566,
Unfair highs – 1.2580
Unfair lows – 1.2542
Value area (VA) – 1.2576 – 1.2556
21-SMA – 1.2582
7-SMA – 1.2550
RSI – shows upward convergence to indicate the strength in the prevailing upswings.
Hammer patterns have occurred at 1.2535 levels, ever since then the minor trend of the pair has been gaining the buying momentum and the current price have spiked above 7SMAs. However, the interim uptrend is restrained below 21-DMA and more rallies are on the cards up to the stiff resistance of levels of 1.2750 where it has failed quite a few times in the recent past.
If the market is balanced, it has already found the point of control which is the fair price, and that’s where it will equal number of options holders and writers. It is most likely to generate range bound day as the prevailing price revolves around the PoC.
Cable prices are finding some two-way price action around 1.2582 in the minor trend and at 1.21 in the major trend with divergence in the intra-day studies, we highlighted now unwinding.
On a broader perspective, although the long-term fundamentals look quite constructive, the major downtrend has now resumed (refer monthly plotting), slumps below EMAs are on the verge of retracing 78.6% Fibonacci levels as both leading and lagging indicators on this timeframe are also in tandem with the selling sentiments & bearish EMA crossover.
Trading tips: On trading perspective, at spot reference: 1.2565 levels, contemplating above technical rationale, it is advisable to execute boundary strike options strategy with upper striking options at 1.2585 and lower short lower strikes at 1.2540 levels, thereby, one can achieve certain yields as long as the underlying spot FX remains well in between these two strikes on the expiration.
Short hedge: Alternatively, on hedging grounds ahead of US Fed and BoE who are scheduled for this week, 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 -50 levels (which is bearish), while hourly USD spot index was at 25 (mildly bullish) while articulating (at 08:58 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex