Cable’s Consolidation phase gets healthier on triangle breakout

Cable’s Consolidation phase gets healthier upon triangle breakout, trendline to substantiate interim upswings - Trading & Hedging Setup:

Cable (GBPUSD) after pulling back from recent peaks of 1.3514 during UK election result, the minor trend has taken trend line support and spikes above 7&21-DMAs, Hammer pattern candle occurred at 1.2082 levels to bottom-out spurs intensified upswings.

Bulls now attempt for further rallies by pushing northwards upon most likely bearish MACD & DMA crossover.

We continue support from there down to 1.3205 and a strong support 1.3116 (i.e. 21-DMA levels). A decline through this support and any breach below would warn of a broader correction taking shape, with 1.3050-1.2960 important daily trend support below. But that event seems unlikely as both the leading and lagging indicators are bearish bias, RSI and Stochastic curves show upward convergence to the ongoing price rallies to signal buying momentum. While a potential bullish MACD crossover substantiates the minor uptrend continuation. 

On a broader perspective, bulls break-out triangle resistance, the major downtrend still remains below 100-EMAs but interim rallies likely may intensify, upswings may extend as both leading oscillators substantiate bulls but trend indicators to confirm, 100-EMAs is the major hurdle.

The consolidation phase is healthier as the major trend the breakout of 1.34 resistance supports our view that the cycle from the 2007 highs at 2.1160 completed at 1.1490 in 2016, with a higher low at 1.1950 this year. As such an eventual recovery through 1.45 towards 1.60/1.65 is expected in a long-run.

While over, our bias is for a gradual move towards the 1.40-1.45 long-term range highs, but we believe it is unlikely we get through that upper area, with a medium-term range to develop under there more likely.

Trading and hedging tips: At spot reference: 1.3222 levels, on trading perspective, contemplating above technical rationale, it is advisable to execute boundary spread options strategy with upper strikes at 1.3287 and lower strikes at 1.3184 levels, thereby, one can achieve certain yields as long as the underlying spot FX remains between these two strikes on the expiration.

Alternatively, on the medium-term hedging grounds we advise to maintain short positions in futures contracts of mid-month tenors. The writers of the futures contract are expected to maintain margins in order to open and maintain a short futures position.