The last leg was 120 pips
The run higher in the GBPUSD took the price from 1.38207 to a high of 1.3941. That is about 120 pips. It took about an hour and 50 minutes.
The price has rotated lower off the high and trades at 1.3907 currently. What now?
On a trend-like move (like we just saw), it is not unusual to see some profit taking. This run up got really going on the move above the 1.3835 level. That was a key swing low from February 2016. That was a key technical break.
In the process, it seems shorts were caught and they scrambled to buy, but were there also new buyers who perhaps are looking at a soft-Brexit as more of a possibility. Are the shorts all done covering? Are the new buyers lurking to buy more on a dip and run this baby even higher going forward?
Traders can get an idea on the "true intentions of the market" on the correction.
Buyers overwhelmed the sellers on the 120 pip move higher. Will they be there on dips too?
ON corrections after a trend move, a key barometer is the 38.2%-50% retracement of the trend move higher. The reason is that if buyers loved it going higher, they should love it at 38.2-50% off. It is on sale at that level.
Moreover, the shorts still out there are hoping the price goes lower. They have survived the 120 pip run. The price is off the high. However, if it CAN'T get below the 38.2%-50% area, they will not feel all that well.
So on the correction, watch the 1.38809 to 1.38951 area. Look for buyers on the dip in that area.
If the price goes below the 50%, the run up was just short term traders running the market. Get out of the dip buy against the yellow area on the 5-minute chart.
IF, on the other hand, the buyers are "in it to win it" and the GBPUSD has more upside run left in the tank (now and going forward), they (the buyers) will come with the pair on sale, and keep the shorts offsides. They will run the pair back higher.
That is the trade. Let's see if the buyers show up on the dip.
