Remember that GBP/CHF triangle setup I was watching last week? Well, price already made a downside breakout and is showing signs of a correction so I’m thinking of hopping in.
Initially, I was looking to short at the bottom of the triangle support at 1.2900 but price action was so choppy then that I decided to wait it out first. The pair continued to slide lower later on but eventually started to pull up after hitting support near 1.2750.
GBP/CHF Trade Idea
Applying the Fib tool on the latest swing high and low on the 1-hour chart shows that the 38.2% retracement level lines up with the broken triangle support. Stochastic is already indicating overbought conditions, which suggests that pound bears are ready to get back in the game soon.
The BOE is scheduled to make its monetary policy decision on Thursday and most market participants are counting on an interest rate cut. After all, data from the U.K. economy hasn’t been so upbeat, particularly when it comes to post-Brexit business activity indicators such as the PMIs.
On the other hand, the Swiss franc seems to have benefitted from the risk-off vibes in the European region, although it has slid lower due to downbeat retail sales and SVME PMI released yesterday. This led to a sharp bounce for GBP/CHF, partly spurred by what appears to be a short squeeze among pound pairs as well.
Still, this pair’s downtrend could resume on BOE rate cut speculations and possible downgrades in economic forecasts during the release of the central bank’s Inflation Report. I’ve already shorted a small position at market with a stop past the swing high and a 250-pip target, which is roughly the same height as the triangle formation. I’m open to adding on a higher pullback to the 61.8% Fib or triangle resistance or on a move below 1.2800.
Here’s what I have:
Short GBP/CHF at market (1.2870) for 0.25% risk, stop loss at 1.3125, profit target at 1.2625. I’ve got close to a 1:1 R:R on this initial position but I’ll be ready to add another 0.25% risk on a pullback or break lower.
As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re following my trade decisions!