FxWirePro: Cable Bears Resume To Breakdown Uptrend Line With Stern Engulfing Pattern But Bulls Attempt To Counter At 100-DMAs

Although we can see cable’s (GBPUSD) interim rallies, they aren’t convincing unless they cross 1.30 – 1.3025 levels (i.e. 21DMAs, pivot point & stiff resistance).

Bears in the minor trend have breached below the uptrend line upon bearish engulfing candle at 1.2990 level, consequently, the current price slides below DMAs with the bearish crossover, while both leading & lagging oscillators indecisive but bearish bias. 

After breaking the 1.2905 previous lows, we still foresee risks for a deeper setback towards 1.2700. If so, we look for the 1.3010 region to cap the current rebound. A move above this area would be an alarm bell and suggest we are seeing an earlier return to the upper range than we expect. Medium term, we still view any moves towards 1.27-1.25 as the bottom of a broad range.

On a broader perspective, we believe the major trend the cycle from the 2007 highs at 2.1160 completed at 1.1490 in 2016, with a higher low at 1.1950 in 2019. So post a medium-term range we see a recovery through 1.45 and towards 1.60 in the coming years.

Trading and hedging tips: At spot reference: 1.2986 levels while articulating, on trading perspective, contemplating above technical rationale, it is advisable to execute tunnel spread options strategy with upper strikes at 1.3025 and lower strikes at 1.2902 levels, thereby, one can achieve leveraged yields as long as the underlying spot FX keeps dipping but remain above lower strikes on the expiration.

Alternatively, on the medium-term hedging grounds we advised to activate longs in GBPUSD futures of February’2020 delivery that have functioned well as expected in our precious post and short positions in futures contracts of April tenors should be as it is as we could foresee resumption of major downtrend in the future. The directional hedgers are expected to maintain margins in order to open and maintain a short futures position.