Top Trade Idea For November 11th, 2013 – GBP/USD
This is a gbpusd analysis and it is no way I should start this analysis without taking a look at the daily chart. This is extremely important as we have a clear impulsive move on the daily chart starting with the lows in the 1.48 area.
The chart below shows you the impulsive move and basically we are looking at an impulsive move with a fifth wave failure for wave five purple there and logic says any five waves structure should be corrected with a three waves move.
Now, does this move needs to obey some rules? Definitely yes. Based on the bigger time frames, the impulsive move from the lows seems to be a first wave of a bigger degree and that makes the case to look for a second wave correction now. If this is going to be a second wave, then a contracting triangle type correction should be excluded. Therefore, we should look at either a zigzag or a zigzag family pattern for the second wave, a flat or a complex corrective wave.
However, while the daily chart does not give us many clues regarding the correction to follow, going on the hourly chart like the one below and we see that the move from the highs is not impulsive as we do not have an extended wave and, therefore, is corrective, meaning it is formed out of “threes”. This is happening only in flats or complex corrective waves and in our case here it seems to be a flat. Flat on a bigger degree wave and flat on the lower degree as well, and the b wave red should take more time to form than wave a red. The same applies to b wave purple and therefore we have the time element incorporated into our analysis.
In plain English, this means we need a five waves structure, an impulsive move to the upside to go to 61.8% retracement level between the recent highs and the recent lows and this would be c wave red and end of b wave purple, and this move should be followed by a five waves structure to the downside, an impulsive move that should take less time to form then the time taken for b wave purple to form.
Big week to come in terms of fundamentals as well, with the CPI and Bank of England’s Inflation Letter, so a lot of volatility should be expected as well.
Our recommendation: stay long for 1.6113 with a stop loss at 1.59 and then look to short the pair into the 1.6215-1.6250 area with a stop loss at 1.6300 and a target of 1.5750.