Guppy has been in a slow grind higher and now testing a significant area of interest. Will it draw in forex sellers ahead of big U.K. events?
This week, we’ve got a couple of potential market movers from the U.K. that could bring in some nice volatility for a short-term forex trader like myself: the Bank of England monetary policy decision and the quarterly Inflation Report. As Forex Gump already mentioned in his event preview, the Inflation Report is the likely mover, with expectations of downgrades potentially coming on the inflation outlook. This could put a lot of pressure on the British pound, so that’s what I’m playing for this week.
Technically, the market has been on an uptrend since bouncing off a strong support area at the end of December, and now it’s back to a previously strong resistance area between 187.00 – 188.00. Stochastic is also in the overbought territory, potentially indicating that this rally may soon run out of steam.
I’m going to be conservative with my short entry by setting them to the very top of the range, with a wide stop incase the initial reaction creates a wide range of choppiness. My target is the bottom of the range, which makes for a very attractive risk-to-reward ratio. Here’s what I’m doing:
Short half position GBP/JPY at 188.00, max stop at 189.50, max profit target at 181.00
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 4.66:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!