Trade Idea: 2012-10-9 2:56 am EST
On the hourly timeframe, we see that the pair has been making lower highs and lower lows. I’m a strong believer that the trend is your friend, so my plan is to just ride the wave.
Using the Fibonacci retracement tool, I see that the pair could find resistance somewhere around its previous support areas that coincide with the 38.2%-50.0% Fib levels. Price will probably pullback to around 1.6100 before it continues to trade lower. Once I see reversal candlesticks materialize in the area confirming my bearish bias, I will pull the trigger.
I will then put my stop somewhere well above the 61.8% Fib level, perhaps at 1.6175. As for my profit targets, I will take profit on half of my position at yesterday’s lows around 1.6025 and let the remainder ride the trend all the way down to 1.5900.
Fundamentally, there are a couple of things going on that could help my trade. For instance, U.K.’s manufacturing production report and trade balance are both expected to get worse. The manufacturing production report is anticipated to show a 0.6% decline from the previous month’s 3.2% increase while trade balance deficit is predicted to fall to 8.3 billion GBP from 7.1 billion GBP.
I’m also pricing in my expectations for further easing from the BOE. The current bond-buying program of the central bank is going to end on November, and many analysts are expecting the BOE to expand it again. As we all know, quantitative easing is normally bearish for the domestic currency.
Okay, that’s it for my trade idea. For now, I’ll have to wait for price to get up to my desired entry level so that I can spot bearish reversal candlesticks!