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Channels and harmonics – GBPNZD analysis

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Brexit is final and Article 50 was triggered.

What now for Britain? What now for the British Pound?

The Cable (GBPUSD) had a pretty volatile week so far:

  • It started with a rally that drove it straight into the potential sell zone that I mentioned in this week’s newsletter – 1.26
  • It sharply declined from 1.26 to its 50 days MA line before Brexit.
  • Yesterday (Brexit Day) it spiked below 1.24 (support), closed above it and formed a daily Pinbar pattern (read more about Pinbars)

As expected, with Brexit already priced in, GBPUSD didn’t crash yesterday when Theresa May triggered Article 50. Does it mean GBPUSD is a BUY?

Personally I think that GBPUSD presents interesting longer term bullish opportunities but, short term, it can still decline to test lower support levels such as 1.235 and 1.23.

My suggestion to you is to monitor 1.24 as support zone and to consider buying into strength if the Cable will stay above its 50 days MA line.

But, in this blog post I want to show you a different and a very interesting setup on a pair that, according to my analysis, presents longer term bullish potential that can benefit from potential GBP strength.

Few important notes before you move on to read my analysis:

  • As all the Market Zone’s content, this blog post is also for educational purposes only. In this blog post you’ll be able to learn trading techniques that involve trading channels, harmonic patterns and structure analysis.
  • GBPNZD is a fast moving pair that requires wide stop loss = higher risk (not suitable for everyone)
  • The analysis below will present several trading scenarios that may (or may not) become relevant in the near future.

GBPNZD – Trading channels and harmonics

In order to start analyzing GBPNZD I first look at the weekly chart.

The weekly chart shows us couple of things:

  1. Since 2002 GBPNZD is in a clear downtrend.
  2. Since 2015 GBPNZD crashed from 2.5 to 1.7
  3. GBPNZD has recenly completed a weekly double bottom pattern near 1.68.

Now let’s zoom into the daily chart:

GBPNZD analysis



The things that the daily chart teaches us are:

  1. GBPNZD broke out of a daily trading channel (channel 1 in red) and found support when it tested its top on January 2016 (the double bottom pattern was created)
  2. Since that day GBPNZD’s price is moving inside a rising daily channel (channel 2 in gold)
  3. GBPNZD is now facing a resistance zone that includes a weekly structure zone (1.765-1.78) and the 200 days MA line.

The harmonic potential

Those of you who are familiar with harmonic trading (learn more) probably already recognized the potential harmonic pattern that GBPNZD is forming on its daily chart:

GBPNZD harmonic trading

For those of you who aren’t familiar with harmonic trading – What you see above is a potential bearsih Bat pattern (learn more about Bats) with a completion zone near 1.88.

What this patterns means is that if GBPNZD will overcome the 1.765-1.78 resistance zone, it will probably continue north towards 1.88 to complete the pattern (longer term bullish target zone).

For those of you who are swing traders, it means that if GBPNZD will close above 1.78 and turn the resistance zone into support, it will probably be better to look for buying opportunities then selling.

Trading scenarios

The first trading scenario is already described above – Look for buying opportunities if and when GBPNZD will break and close above 1.78.

But right now, GBPNZD is still inside the weekly structure zone and it is facing a weekly resistance – So buying here doesn’t make sense.. right?

A wise technical trader doesn’t consider buying below the 200 days MA line. Especially following a false breakout attempt like you see in GBPNZD (tried to break above the channel’s top and failed)

Right now, as long as GBPNZD is below its 200 days MA line, things are looking more bearish than bullish. If you need another proof, look at the 240 minutes chart below:

GBPNZD analysis

This chart shows us that GBPNZD’s price is below 2 MA lines now (resistance) and below the bottom of a third channel, a smaller one, channel 3 (in purple).

Short term bearish scenario

Based on the daily and 240 minutes chart, GBPNZD is presenting some short term bearish potential.

An option to a bearish play here is to short GBPNZD below 1.77 and use a stop loss of about 60-100 pips to try to score 150 pips with target zone near 1.755 (bottom of channel 2).

As you can see, the R/R that you get for such a setup is about 2:

GBPNZD analysis

Aggressive bullish scenario

The other option that you may want to explore is a bullish one – An aggressive entry that is based on the assumption that GBPNZD will eventually break above 1.78 and continue towards the PRZ of the bearish Bat:

GBPNZD analysis

This scenario relies on the option that near 1.75 GBPNZD will find support again and continue to climb higher.

The technical elements that will support GBPNZD if it’ll reach 1.75 are:

  1. Weekly structure zone
  2. The 50 days MA line
  3. The bottom of channel 2

Obviously when you take such an aggressive approach you can’t set targets to 1.88 and forget about the trade.

Aggressive entries require active trade management.

For example, the 200 days MA line must be set as a target zone in which you’ll be required to take part of your profits out and protect the rest.

Summary

The longer term analysis for both GBPUSD and GBPNZD present bullish opportunities.

Like all things in life, its all about timing and making the right decisions at the right time.

If you think GBPNZD is heading higher towards the completion of the harmonic pattern, perhaps its better to wait for the breakout above 1.78. If you want to be aggressive with your bullish entry, you still need to wait for GBPNZD to reach the potential Buy Zone near 1.75.

If you are bearish, your trading opportunity is now. As long as GBPNZD is below its 200 days MA line.

The purpose of this blog post was to show you the scenarios I see in GBPNZD but also to present you the way I analyze things and find trading opportunists.

Want to learn more? Want to be able to do it yourself? Join my mentoring program, the Elite Zone, and get access to all of my weekly\daily trading plans.

 

 


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