GBPUSD is about to complete a Butterfly harmonic pattern which suggests a move upside. The following 18 July GBPUSD harmonic pattern analysis looks at the price reversal zone.
GBPUSD could make a rally at around 1.2965. This is because an harmonic technical pattern is about to complete there. Harmonic patterns use Fibonacci ratios from swing points to derive a possible price returning point or level. The one discussed below is a Butterfly pattern.
18 July GBPUSD harmonic pattern analysis: Butterfly pattern?
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The starting point X of the first leg XA is at 1.3050 and ended at 1.3360. The AB corrected up to 84% of XA (a bit more than 78.6% required for the Butterfly pattern). BC leg corrected AB leg at 73% which was at 1.3292 (this flows well since Butterfly requires from 38.2%-88.6%). The last leg CD which determines the price reversal zone is expected at 1.2965. At 1.2965, we will have 127% Fibonacci extension of the XA leg which is what is required for a Butterfly pattern. The 165% Fibonacci extension of the BC leg also falls at 1.2965 (Butterfly pattern requires 161.8%-224%). If we use an exact Fib-extension ratio for BC extension, 161.8% extension ends at 1.2986.
What is the Price Reversal Zone?
It's safe to say the reversal zone for the completion of this pattern is 1.2986-1.2965. Price is expected to rally at this level given that the pattern is formed within a channel. There is also an expanding diagonal completing around this same level.
Invalidity?
If price breaks below 1.2965 massively, it could lead further to a break below 1.2950 and thereby invalidating the harmonic pattern.
How to trade the pattern
There are different ways traders trade harmonic patterns. Here are some suggestions.
- Wait for the pattern to end at 1.2965 and then make a buy order at 20 Pips above with Stop loss 10 Pips below the lowest price. Targets can range from 1:1 to 1:5
- Buy at 1.2965 where the pattern will complete. Set stop loss 40 Pips below. Target range from 1:1-1:5
- Wait for the pattern to complete and use any technical reversal signal to spot a position.
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