I am watching these three pairs for possible trade setups.

GBPUSD: Yield Differential Diverges From Price

UK/US 2-Year bond yield differential
UK/US 2-Year yield differential

UK 2-year bond is underperforming the united states 2-year treasury bonds. However, the GBPUSD continued the bullish run maintaining strength against the USD. Eventually, the UK/US Yield differential should converge with the GBPUSD price.

This is not a short signal per se, because we can never know when the YD and the GBPUSD will converge again. Yet, we should keep an eye on the GBPUSD for other factors that point to a possible GBPUSD bearish reversal.

GBPUSD Daily Chart

Another reason the pair is on my watchlist is that it has approached the 9-month-long falling trend line(descending resistance).

Also, a swing high and potential horizontal resistance is also around 1.1740-1.1760 area.

Meanwhile, stochastic entered the overbought area again. We already know that when momentum reaches an overbought area in the context of a bearish trend it is a short signal.

That’s why I will be waiting for a bearish reversal confirmation signal starting from current levels up to 1.1760.

Note that a break above 1.1760 shall reverse my bias to look for long trades.

AUDUSD Near 50-days Average

AU USD 2 Years yield differential
AU/US 2 Years yield differential

The same goes for the Australian and U.S. yields, however, the difference is less significant here.

We have seen an upside correction recently. The price could be approaching the 50-day simple moving average and the short-term falling trend line. In addition to the prior swing high at 0.6550.

AUDUSD Daily Chart
AUDUSD Daily chart

This could form a resistance area. I will be watching the price for reversal signals to confirm the downside reversal, such as a reversal candle pattern.

If the price extends the current upside correction to break above 1.6550 resistance, a bullish inverse head and shoulders pattern will be completed. This would reverse my potential trade from short to long.

GBPNZD Pending Bearish Reversal

One more pattern is the GBPNZD potential head and shoulders top trade setup.

Following the breakout above the sideways resistance at 1.9670, the pair extended the upside to form a swing high at 2.0318.

GBPNZD Daily chart

Since then, the pair fluctuated failing to create new higher highs. The most recent swing high could be the right shoulder for a head and shoulders top pattern. This shall be confirmed if we see a breakout below the 1.9550 level (neckline for the pattern).

That would suggest more downside is likely as the price enters back the prior sideways range.

Lu'ay Af.
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Lu'ay Af.
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