The pound sterling has our attention today. We have been keeping a close eye on this chart since it broke down at the start of the month and began to form a range trade.

Since Dec. 8, ther have been a five consecutive days where the candlesticks have shown indecision. The first three are clear doji stars and the following two are as well, when taken together.

Now, we have pushed to the top of the range and set up one of our favourite types of trades.

Doji stars are a great way to key in on what is usually a big move. When a market ranges like GBP/USD has, a breakout is usually a powerful event. When a range becomes established, it also gives you good, clear guidelines on where to put your orders. In short, a series of doji stars followed by a push to the upside are a technical traders’ dream.

So what’s the trade? Will GBP/USD breakout and shoot higher? Or will it go back to the bottom of the range?

On the daily chart, we can see that the RSI and stochastic are both showing bottoms and turning higher. But let’s take a look at the hourly chart.

This chart is showing the opposite — the RSI and stochasic are overbought. This is called divergence. It’s when two different charts are giving different signals and unfortunately, it’s common. In a breakout scenario, it’s almost inevitable.

Taking a closer look at the hourly chart, we can see that the parameters of the range are from 1.6167 to 1.6373. Already today, we have come very close to the top of this range but as we can see, it’s offering strong resistance.

The way to play both sides of this trade is by trading with very tight stops. One way to do it is sell the top of the range with a stop 15-20 pips above. If the stop is hit, turnaround and go long. This leaves you vulnerable to a false breakout but allows you to profit in either direction.

A variation of the same trade is to but a buy order in 10 pips above the range with a stop 15 pips inside the range. If you get stopped out or if the market breaks down and starts to fall back into the range, you can spin around and go short at around 1.6350.

Fundamentals:

We have a few announcements today which will affect the market.
Coming from Europe we have the “Minimum Bid Rate”. The previous announcement was 1.00% and the forecast for today is 1.00%. (11:45 GMT).at 12:30 GMT we have the European Central Bank Press Conference.

Two more announcement coming in from U.S. “Unemployment Claims” which will be released at 12:30 GMT, previously resulted at 570K and the forecast for today is 563K, The final announcement is the “Institute for Supply Management Non-Manufacturing Purchasing Managers’ Index”. The previous results were 46.4 forecast for today is 48.3 (14:00 GMT)

AUD/USD

Good morning, this is one of the most interesting pairs, as can be seen over  a daily chart , this pair moving  step by step leading us to an uptrend,  just recently this pair decided to stay in a clear range, it’s a question of time when the pair will decide to break into the s & r, we will wait and see, to where this pair will continue to move.  let’s see what happened yesterday  :133 pips movement.

USD/CHF

Over the last few days The pair is having a little difficulties getting above the Resistances  1.0600 and staying there. Looks like this pair moving to few new support lines as 1.0570. in case it will move more then 1.0570 we will set new S&R lines, the market have several bars before that happens, USD CHF moves without trend and swings around exponential  range moving averages of 50-100 pips
1 hour.

Profit Table: