Now that we’ve seen a couple of downbeat U.K. reports this week, I’ve got another short pound trade idea with this support turned resistance play on GBP/JPY. I’m seeing a long-term descending trend line on the pair’s 4-hour chart and price is currently testing this resistance level.
Now this area coincides with a former support level around the 158.50 minor psychological mark, which seems to have held as resistance already. It also lines up with the 61.8% Fibonacci retracement level, which is keeping gains in check.
I’ve decided to hop in at market around 156.75 and I’ve set my stop just past the trend line and close to the swing high. Stochastic is already moving down from the overbought area anyway so pound bears are already taking control. After all, the U.K. jobs report turned out to be a huge disappointment with an increase of 6.7K in claimants instead of the projected 11.9K drop. On top of that, the average earnings index slipped from 2.1% to 1.8% to indicate a decline in wages, which probably explains why the retail sales report printed a dismal 1.3% decline instead of the projected 0.1% dip.
Here’s what I’ve got:
Short GBP/JPY at market (156.75), stop loss at 162.25, initial profit target at 151.25.
I’ve risked 0.5% of my account on this setup and I’m going for a 1:1 return-on-risk, but make sure you check out our risk disclosure if you’re joining me.