4Xlounge Round Table – GBPUSD (2012 Forecast)
4Xlounge Round Table Trading Signals
As we look ahead into 2012, the GBPUSD will be the focus for many traders. When choosing between the EURUSD and GBPUSD, the GBPUSD should provide a “cleaner” trade. The Pound Sterling (GBP) is seen as a safe haven currency at the moment. Along with the CHF and USD, the GBP has enjoyed significant upward momentum over the past year. However, this has recently changed. As confidence in the USD grows, interest in the GBP begins to enervate. This should produce gradual declines for the GPBUSD over the coming year.
This should provide strong trade opportunies over the coming. Before we jump into a trade, we need more confirmation and a trading plan. The fundamentals and technicals should provide the confirmation that we need. Once we have confirmation, we can formulate a trading plan.
The Fundamentals
The UK economic data is a mixed bag. Very similar to the US economic data. Not bad, but not great. The UK data does not suggest strong head winds, but it does not elude to strong tail winds either. This indecisiveness may be the reason for the GBP recent declines. Investors prefer a clear picture (good or bad). Bottom line; the fundamentals do not provide much insight.
The Technicals
The technical data is a different story. The murky GBP picture begins to clear out. As usual, our Bigger Picture Barometer provides invaluable insight. The GBP broke through long term support and closed below. It is very rare to have a currency break back through support or resistance. When it does break back through, it usually happens during the very next interval. We can be confident that the GBP is headed lower. Also notice that the GBP is now below 50. The USD analysis is not quite as strong, but it does confirm a downward move the GBPUSD. Let’s add up all of our key points for the GBPUSD:
- Recent break-out for the GBP below long term support on the Bigger Picture Barometer.
- The USD continues to climb without over-extending, this should provide more upward momentum in the near future.
- The current fundamentals (i.e. investor confidence) seem to favor the USD over the GBP. This could change, but for the moment, the USD is the winner.
- Our Daily Power Bars are still showing selling pressure for the GBPUSD. The last several rallies have stalled and the candles/market meter are mostly red.
The GBPUSD Trade Plan for 2012
The GBPUSD Trade Plan for 2012
The GBPUSD Trade Plan for 2012
The GBPUSD Trade Plan for 2012
The Trade
We need to keep this move in perspective. The GBPUSD will not drop 10 cents (1000 pips) in a few weeks. The likely scenario, is a slow grinding decent, so we will have to pick our entries carefully. Similar to our EURUSD trade, we want to sell the rallies and exit on the strong dips. We should get several openings over the next year. Dozens on the 30 Minute Power Bars. Here is my trade plan:
- Plan 1 – I will wait for a rally. I would like to see the GBP at 70+ on the Med or Long Term Barometer, and the USD at 30- on the Med or Long Term Barometer. I would like to see both at the same time, but this does not usually happen, so I will use X Meter as my final confirmation. When one side of the pair is over-extended on the Market Barometers, I will wait for the 15 Minute X Meter to hit 12.5 or greater. When this happens, I will sell. My target will be about 3x the 4 hour ATR and my stop will be 1x the 4 hour ATR.
- Plan 2 – If the consolidation is slow and grinding, the Market Barometers might not confirm the over-extension. In this case (after a significant rally) I will hunt for entries on the 30 Minute Power Bars and Trend Map. I will make my targets a bit larger than normal (look at Plan 1), but keep my stops within a normal range. This might be the best way to catch an entry. Time will tell.
- Plan 3 – If Plan 1 and/or Plan 2 fail, I will use our 4 Hour Power Bars. Basically, if I see a valid 4 Hour Power Bars sell signal for the GBPUSD, I will take it. Pretty simple, but this might be the only option if we do not get a rally.
Play It Safe!
As always, do NOT increase your risk. Keep your leverage at recommended levels and follow the rules of entry for each system. Do not bet the farm on any single trade. Never risk more than 2% per trade. Remember, slow and steady gains will win the race. High risk = high loss and eventual margin call. If you have any questions, post them on our forum and I will be happy to answer them.
