A1 Trading Company

April 18, 2021

GBP/USD Deep Dive: Continued Channel?

Bart Kurek

Looking at the overall market movement on GU, we can clearly see that price has been steadily increasing within the long-term channel (A) formed from the initial Covid-19 drop back in March last year. Price has successfully created higher highs and higher lows, respecting the channel's bottom and making an overall move to the upside.

Price reached 3-year highs recently, touching 1.42 at the channel's top and now made its new higher low, touching 1.365 at the channel's bottom.

You should have noticed a much smaller, short-term channel (B) formed inside channel A. We can see that from creating the higher low at 1.27 in September 2020, price was steadily increasing but staying within the short-term channel's barriers. This went on for almost six months before a significant break was made.

We can also see now on the H4 timeframe that price is forming a bullish flag pattern, where it is also currently at the descending channel's top and is likely bound to be broken any time now. Usually, we would expect to see a break to the upside, following a retest of the channel's top treated as new support rather than current resistance.

From March 20th onwards, the Pound has been losing strength as Coronavirus vaccination rollouts have slowed drastically. From January up to March 20th, there has been a daily average of around 400,000 people getting their shots daily. Then all of a sudden, this number dropped to an average of 60,000 per day. This was not good.

At the start of the month, it was said that "some concerns arise about vaccination supplies due to shifts in EU export policy, the UK economy appears to remain on track to return to its pre-pandemic output faster than most other developed economies". One week later, vaccination rates dropped, and the British Pound's relative appeal that carried it through the first three months of 2021 has been tarnished.

However, there's always a light at the end of the tunnel, and looking at the vaccination data provided by the UK government, vaccination shots have been slowly increasing, reaching about an average of around 110,000 shots. Obviously not as good as before, but still much better.

April's economic calendar for GBP has been pretty dull; however, there is definitely an argument that there will be much more event-driven volatility in the weeks ahead, especially in May. If the results come out better than expected, then we will see GBP gain strength, as it's set to do so.

Also, most retail traders are short on GBPUSD at the moment; we can see that 70% are in fact short, which is a vast majority. The concept I have been trying to portray in my telegram analysis and articles is that the banks are working against us, and if they can see that most traders are short, it gives them a perfect opportunity to make money and stop out most retailers in the market.

Summary

Overall, I'm actually bullish on this pair, and once we eventually see the initial breakout out of the descending channel (H4 timeframe) retrace to the channel's top, I'll be looking out for price action confirmations of a continued long-term channel movement and look to take a setup, sort of like this:

Obviously, this isn't guaranteed it will happen but a large target area like above is one I would personally look to catch, holding the trade for multiple weeks - taking profits and moving stop losses to profit on the way of course.

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