Whilst there has been little in the way of positive to grab hold of in recent sessions it has been quite notable that prices in a number of key indices have been finding a goodly degree of support in recent sessions. The correlation between risk markets is far from a constant but the overall sentiment that we are witness to can readily be described as consistently changeable – with that bombshell I think the one thing that we need to remain mindful of is that price moves represent where money is travelling and so to remain ignorant of that is leaving valuable information unused. When it comes to the short term chart of the GBPUSD I think that we are seeing a clear example of markets in the balance with the next directional push being key.
I initially thought of this as a descending triangle – but it would be a poor example of one – instead I am showing this as an exercise in where support and recent downtrend intersect with one another. As you can see I have used a long term volatility indicator here (just making the Bollinger Bands much larger in the time frame they look at) and you can see that price has been skating down the outside of the bands – a good sign of consistent market opinion. At the moment though price is finding consistent support as you can see at around 1.5675. The thing to look out for here will be if price can breach support to the downside OR if it rallies whether it can push through the volatility bands which currently form up as resistance – whilst we are trading in the current range there is much less predictability of the currency rate.
If we look at the longer term the picture is decidedly bearish – Exhibit A
No prizes for spotting the recurring theme on this chart.
I am not even presenting the 200 day moving average as anything more than a barometer but you can see that the side that the price is trading on is generally a decent gauge for what overall market sentiment is telling you. The lesson here is not that you can’t trade against the broader trend but that you need to be aware if what it is telling you for any targets that you set because the larger timeframe trend will be the dominant one and whilst it is in force this will likely dictate which way the prevailing flow of money is headed.