I’m thinking of entering another long GBP/USD trade!
Buying GBP/USD is probably not the best idea coming off my recent attempt at jumping on GBP/USD’s uptrend. Upon reflection though, I have decided that it’s still a good idea to buy the pound against the Greenback and not taking this trade might make me guilty of recency bias.
On a fundamental basis, news of more tightening from the Fed should have pushed the dollar higher across the board. Instead, news of the U.S. yields flattening on the back of low long-term growth and inflation expectations are hitting the markets. Not only that, but comments by BOE member Martin Weale about rising wage growth and the possibility of rate hikes have set the wheels turning (pun intended) for more rate hike speculation from the BOE.
On a technical basis GBP/USD is primed for another bounce higher. The pair has just formed what looks like three white soldiers on the daily chart. It looks even better this time because it’s also near a rising trend line, the 100 SMA, and, as Big Pippin pointed out, a 61.8% Fib retracement. And let’s not ignore that Stochastic is about to leave the oversold area!
I’m thinking of using the U.K. retail sales report as catalyst for this trade. If the report surprises to the upside I could enter a 0.50% position and place my stop loss just below the trend line and my profit targets near its recent highs (1.6800).
Do you think this setup actually has merit or am I just forcing a trade for my long Cable bias?