Hello volatility my old friend: GBP/USD, EUR/GBP,USD/CHF

Regardless of the reason, volatility is back.


There is a new strain of the coronavirus.  Flights are being shut down to and from the UK  and the rest of the world.  The US is about to sign a $900 billion US emergency fiscal aid package.  Brexit is going to be agreed on soon.  Brexit is not going to be agreed on by December 31st.  President Trump is still vowing to win the US election.  There is light volume is the markets due to end of year.  There is more stimulus to come.  China! Whatever the reason, volatility has picked up today and it may continue to be here through year end!


GBP/USD has bene trading in a megaphone pattern since November 23rd.  A megaphone pattern is a broadening pattern, in which price forms higher highs and lower lows, thus creating volatility.  On Friday, GBP/USD traded above 1.3600 and closed near 1.3500.  On Monday, price gapped over 100 pips lower and traded down to as lows as 1.3188 (a 2-day range of over 400 pips!) before reversing.  Simple Fibonacci analysis from Friday’s highs to today’s lows shows that price retraced to the 38.2 Fibonacci line near 1.3350.  1.3404 is the 50% retracement level and 1.3484 will fill the weekend gap. First support is at today’s lows, then horizontal support at 1.3134 and then the downward sloping trendline from the megaphone pattern near 1.3088.

Source: Tradingview, City Index


EUR/GBP has been trading in a symmetrical triangle since March 19th.   After trading just below the triangle for much of November, the pair rallied back into it and has been trading erratically near the apex.  One thing is for sure…traders do not like EUR/GBP above 0.9200!  On both December 10th and today, the pair rallied above the downward sloping trendline of the triangle and sold off back into the triangle.  Gap support from the open is at 0.9084.  Thursday’s lows are at 0.8981 and horizontal support is at 0.8918.  Resistance above is at today’s highs of 0.9217, then December 10th highs of 0.9230.  Above there are the September 11th highs of 0.9292 and then the March 19th highs at 0.9500.

Source: Tradingview, City Index


USD/CHF is sometimes used as a proxy for the US Dollar Index because of their correlation.  On a 120-minute timeframe, the current correlation coefficient between USD/CHF and DXY is .91.  A correlation coefficient of +1.00 would mean that the two assets move together on a one for one basis. USD/CHF broke lower below support on December 2nd and has been trading in an orderly downward sloping channel since.  Today, price tried to aggressively push the upper trendline of the channel.  USD/CHF traded erratically between 0.8842 and 0.8919, before forming a shooting star and pulling back into the channel.  The RSI had been diverging from price since early December and finally moved higher today (only to sell off again.).  Resistance is at today’s highs near 0.8918, then not until the December 2nd breakdown point near 0.8980.  Support is at Thursday’s lows of 0.8822, then the bottom trendline of the channel near 0.8800. 

Source: Tradingview, City Index

Regardless of the reason, volatility is back.  Traders love volatility as it gives them more opportunities to make money.  However, volatility can also bring quick losses.  Trade smaller and make sure to use proper risk/reward in wide ranging, volatile days.

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