The rebound in ‘risk’ trades today left some interesting patterns. Some look like they could be putting in bottoms, others look convincingly like the trend will continue. We are looking for clearer signals but in the meantime we see some charts that are flashing trading opportunities.

Cable has posted an interesting pattern over the past 10 days, bouncing in a 300-pip range. We will be watching this trade over the next few days and think a break to either side will be a good barometer of the broader risk trade.

As we can see, GBP/USD has traded in a 294 pip range since the gap lower to start the week of May 16. The gap lower co-incided with the election of a new government and we are now getting a sense of the austerity measures they plan to unveil to curb the huge UK deficit. It’s possible that announcements on that front will be what pushes this pair from its range. If the measures are too severe of too leniant, the pound will fall. Poilcymakers will need to strike a plan that’s both credible and promotes economic growth.

Technically, there are two ways to trade. The first is to buy at the bottom of the range and sell at the top. The second is to await a breakout. At the moment, we would favour selling a rally if GBP/USD reaches the top of the range and covering a portion at the bottom of the range. Playing a breakout is also an attractive strategy. The measured target of a range-trade breakout is equal to the range, so a fall to 1.3940 or a rally to 1.4822 is expected.

The euro continues to get battered on worries about Greece and the pound sterling continues to bounce on hopes for a clear Conservative win in the May 6 election.

Technically, we are seeing a nice channel moving lower on the two hour chart. Above that, there is further resistance from the month-long downtrend.

At one point, we sense a great deal of optimism about Greece. The European Union appeared united and the austerity plan seemed legitimate. That is all starting to change. It’s clear EU leaders can’t work together and Greece continues to find hidden debts.

The bond vigilantes returned today and pushed Greek spreads to a fresh record of 410 basis points above German bunds (10-year). For euro traders, that’s a sell signal of the clearest kind. The Greek story is about to take another leg for the worse and there is no trade but to sell the euro.

The pound sterling fell for the fourth straight day on Tuesday as the U.S. dollar continues to make broad gains. Tuesday’s action was notable because GBP/USD declined below the 200-day moving average. The last time sterling fell below the 200dma, it went on to fall 6000 pips in the following two months.

We talked about cable just last week, noting that it was setting up for a big move. We recommended pivoting around 1.6378 and that proved to be good advice. After a quick headfake to just above 1.6400, it fell precipitously. We even warned about a false breakout. If you had sold at 1.6350, you would have made nearly 400 pips by now.

Sterling has fallen below the range we outlined there and the measured target of that move is 1.58, leaving a potential for 200 more pips of profits. We caution that it’s a dangerous market at the moment because of the lack of liquidity around the holidays. Keep your stops tight.

Let’s take a closer look at GBP/USD and outline some potential scenarios.

We can see the 200-da moving average in red. We also see major support (in blue) at 1.5707. This is a potetial target for the recent move but with the Bollinger Band already stretched and the RSI in severely oversold territory  32, we have a hard time envisioning a fall below 1.157 without a correction a period of consolidation first.

The hourly chart offers reasons for continuing bearishness in the short term.

Here, we see that the slow stochastic has climbed back and in danger of rolling over. The key resistance points we see are noted here. They are 1.6029 and 1.6100. The downtrend is also key.

Undoubtedly, the trend is higher. In the past week, we have seen early selloffs every day but the sterling invariably recovers and rallies. Still, the charts show the pound is now entering an area of stiff resistance, so a correction could be in order.

First, lets take a look at the daily chart. Here, it’s easy to see the difficulty GBP/USD has had in breaking above 1.6700. In six attempts, it was immediately rejected in five with one short-lived breakout.

Lots of resistance ahead

Aside from the one breakout, the day following a failed retest of 1.67 has seen drops of at least 150 pips. The most recent failed test — on Oct. 27 — was followed by a nearly 400 pip fall.

On the hourly chart, we see the strong support around 1.6250 that has led to the push toward 1.6700. We also see early signs of the failed test of 1.6700 as the market opened higher to start the week but has quickly pulled back to unchanged levels.

Look for another powerful rejection of a 1.6700 in the day ahead or for a breakthough a short squeeze higher. No doub, it will be an interesting day for sterling traders.