This could be a very interesting week for the GBP/USD and the GBP/JPY. (the daily charts are very similiar). We will look at the GBP/USD since the DX will be playing a huge roll in the GBP/USD this week. In order for the GBP/USD daily chart to play out, the DX needs to break the 81.43 price. Take one look at the weekly DX chart and you will see why.
GBP/USD Daily Chart
The GBP/USD daily chart has formed a bear flag along with an ABC pattern. (note the targets from the chart above). Not to mention the bearish hidden divergence (one of the most powerful indicators in the market), the stochs rejecting the 90 level and crossing down and also another major indicator, the CCI zero line rejection. This combination signifies a pretty big sell off for the GBP/USD(and the GBP/JPY) but here is the catch…….the DX MUST break above the 81.43 level.Most of my members have figured out by now that I do not trade the G/U without also trading the DX. There lies the chance that the GU price could bounce off the daily TL as the DX rejects the 81.43 level and make a retracement up to the 5180 level before gaining the strength to break thru the daily trend line.Either way, selling the retracement around 5130 -5180 would be the best bet but of course we dont always get the best so on the other side, we could sell a 15 min close below the 4960 level to try to catch the move. (keeping in mind, we would need a decent sized stop to sell the 4960 level.)