FxWirePro: Can Cable Bulls Form Double Bottom Or Bears Breach Uptrend Line Support?

Cable’s (GBPUSD) minor trend spikes through the uptrend line so far, but bears for now have slid below 7&21-DMAs and attempt to breach below uptrend line support (refer daily chart).

Prices are in the midst of the current contacting range. A break-up through 1.3215 level and then 1.3280 resistance would suggest a broader upper range is actually developing for an eventual test above the 1.3500 December highs. Until then, our studies still suggest this ‘triangle’ pattern will see a deeper correction towards the 1.2700, maybe 1.2500 regions – confirmed by a breakdown through 1.2980 and 1.2905. However, we view that area as the bottom of a medium-term range.

On a broader perspective, Bulls appear to form double bottom pattern as the current price spike above EMAs on monthly terms as both leading oscillators (RSI & stochastic curves) show the upward convergence.

Hence, we reckon that the cycle from the 2007 highs at 2.1160 completed at 1.1490 in 2016, with a higher low at 1.1950 in 2019. As such, an eventual recovery in the years ahead is expected through 1.45 and towards 1.60.

Trading and hedging tips: At spot reference: 1.3012 levels, on trading perspective, contemplating above technical rationale, it is advisable to execute boundary spread options strategy with upper strikes at 1.3080 and lower strikes at 1.2950 levels, thereby, one can achieve certain yields as long as the underlying spot FX remains between these two strikes on the expiration.

Alternatively, on the medium-term hedging grounds we advise to activate longs in GBPUSD futures of February’2020 delivery and short positions in futures contracts of April tenors. The directional hedgers are expected to maintain margins in order to open and maintain a short futures position.