Hello traders! In this analysis, I’d like to share with you my personally developed “GBP Index”. Below is the chart, which has been calculated based on the SUM of all GBP currency pairs as you can see in to top left corner. What it shows is the overall direction of the GBP rather than a direction specific GBP currency pair.
So why do we need it? We can use this information to determine the direction of each currency of our choice with a simple “sum” formula. This will help to find the direction of the prevailing trend and then chose the currency pair most suitable for trading depending on our rules.
What we see on the “GBP Index” is that price has reached the 200 Simple Moving Average on a Daily chart. Yesterday price failed to close below, which could mean that GBP could be starting to dominate across the board. So let’s have a look at one of the GBP pairs, the GBP/AUD.
On the daily chart price nearly reached the 200 SMA and 88.6% Fibonacci retracement level at 1.8893. Although today, we already see a strong bullish daily candle.
If we jump to the 4-hour chart, we are able to spot that price has reached and bounced cleanly off the 261.8% Fibonacci retracement level at 1.8982. After that rice immediately started to move up and currently facing the resistance, which is a downtrend trendline.
If a 4-hour closing price will be above the trendline, bulls are likely to step in and push the price much higher. There are two potential upside targets as per the Daily chart. First is the 61.8% Fibs at 1.9459, which corresponds to the previous area of support. The second is the 50% Fibs, actually, there are 2 x 50% Fibs, one from the Daily chart and another one applied to the last strong correction of the initial downtrend. Both of these 50% retracement levels at 1.9708 also correspond to the 200 SMA and should be used as a key resistance in the coming weeks.
On the downside, daily break and close below the 1.8982 will invalidate bullish scenario, and the price is likely to test 88.6% Fibs at 1.8893
Bias: Bullish while above 1.8992
Potential Resistance Zone: 1.9000-1.9050
Potential Targets: 1.9459, 1.9708
Have a profitable trading!