Cable Running Out of Bullish Momentum

04/24/2013 9:00 am EST

Focus: FOREX

Anna Coulling

Professional Trader, Professional Trader

Despite the Fitch downgrade of UK debt, which could weigh on the British pound, this currency pair continues to trade in a range, and Anna Coulling of AnnaCoulling.com takes to the charts to try and decipher the pair’s next move.

For forex traders in cable, the last few days could best be described as difficult, as the pair continue to trade in a narrow range, moving higher one day, then lower the next, all within the context of a 200 pip range, as shown by the yellow and green dotted lines. The resistance level is now clearly in place at 1.5400, whilst the floor of support is equally clearly defined in the 1.5200 area, and indeed was tested once again in today’s lackluster market. Even the isolated pivot low of Thursday failed to inject any momentum, with Friday’s failure to close higher, looking particularly weak.

So, where is cable heading next? Let’s take a look at the volume bars during April and see whether we have any anomalies here to help us.

If we scroll back to the start of the month, the initial move back through the 1.5200 price level, with the widespread up candle and deep lower wick, was accompanied with high volume. The subsequent candle again closed with a wide spread, and with marginally lower volume, but the subsequent up candles over the next three days, were all accompanied with above average volume, but were narrow spread candles on the day, suggesting weakness at this level. This weakness was duly validated as the pair reversed from the 1.5400 level, and subsequent down candles associated with rising volumes, once again signaling short-term weakness. Wednesday’s wide spread down candle last week was associated with high volume, with Thursday’s narrow spread up candle on high volume, duly validating this weakness, followed by Friday’s weak price action. In short, at present, an analysis of the daily chart based on volume and price is suggesting weakness in the short term. However, for this to be confirmed we need to see a clear break and hold below the support platform currently in place in the 1.5200 region.

The volume at price indicator on the left hand side of the chart gives a clear indication of the depth of price in this area, and any move below this level, will then leave a deep area of price resistance in place above, for any subsequent recovery in the longer term.

chart
GBP/USD – Weekly Chart
Click to Enlarge

Moving to the weekly chart, this paints a similar picture. Here we can clearly see, once again, the volume at price congestion zone, with the floor in place just below the 1.5200 area. In addition, the doji candle of two weeks ago has now been confirmed as a reversal, validated by last week’s price action, along with the isolated pivot high, which is now adding further downwards pressure. Finally, note the weekly volume on the up candles as the pair moved away from the 1.4800 low of mid March, and in particular the volume of three weeks ago. It is average on a widespread up candle, sending a clear signal that the move higher is lacking momentum from the buyers and therefore likely to reverse soon.

By Anna Coulling, Professional Trader & Blogger, AnnaCoulling.com

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