Cable (GBPUSD) is firmly in my watchlist has it reaches the first of two zones of resistance which, if respected, keep a longer-term head and shoulders top in play.
At current levels Cable is just below 1.542 resistance and also around its own 10 week average high-low range. This is not to say it cannot go up any further, but is a rough proxy for what may achievable. It may also make you reconsider entering long on the daily timeframe expecting another 300-pip rally north this week. Interesting to note that the 20 week average is close to a 300 pip range, so recent weeks have seen GBPUSD produce lower weekly ranges at a time other crosses have seen increased volatility.
Taking a step back I believe we have formed a large Head and Shoulders top which, if successful, would project an initial target around 1.47. Currently sitting below 1.542 resistance I’ll not be too upset if we see a break to 1.55, as the prior two trading session have closed near the highs (so near-term momentum is clearly bullish). However if we were to place a stop well above 1.55 (and the neckline) to hold on for a longer-term move we may be able to achieve a relatively decent reward to risk ratio that requires little monitoring as we let the markets do its thing.
I had started the week noting that GBPUSD was looking a little over-stretched to the downside so quite happy to have seen it rebound off of 1.516 support.
A break below 1.516 opens up 1.50 and 1.485 as bearish targets with the H&S top projecting the 1.46-47 area. As this is a longer-term pattern we need to be patient in regards to holding time and sensible with stop placements (ie. wider) so jumping in is less of an issue. Of course, depending on how you manage your risk, will probably require a larger account size to manage it sensibly. A break above 1.55 areas invalidates the setup and requires a return to the drawing board.
If you are trading intraday timeframes then 1.5420 is our bullish/bearish line in the sand, with a break above 1.542 targeting 1.55.