18 July GBPUSD harmonic pattern analysis: Emerging Butterfly?


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?

Chart and Harmonic tools from TradingView

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.

  1. 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
  2. Buy at 1.2965 where the pattern will complete. Set stop loss 40 Pips below. Target range from 1:1-1:5
  3. Wait for the pattern to complete and use any technical reversal signal to spot a position.

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