Happy Labor Day, forex traders! While I’m waiting for EUR/USD’s range setup to play out, I decided to take a look at a possible retracement trade on GBP/USD.
On a technical basis the pair is poised to go higher. Cable has a potential to bounce from the 1.5350 area, which is also right smack in the 38.2% Fib retracement and the 100 SMA on the 1-hour time frame.
The direction isn’t as clear on a fundamental basis though. As I mentioned in my last few trade ideas, I’m still dollar bullish overall. But hey, you gotta trade what you see and not what you think, right?
It seems that the recent disappointments in the U.S. reports are taking its toll on interest rate hike speculations and are pushing some dollar bulls to take profits from their positions. Not only that, but a slight optimism over the upcoming U.K. elections and a bit of recovery in the euro zone’s economic reports have helped spur demand for European currencies.
So for now I’m looking for the uptrend to be my friend, at least until it ends. I’m risking 0.50% of my account at 1.5350 and placing a 150-pip stop to 1.5200. I’m placing my initial profit targets at 1.5500 but I’m willing to take early profits or move my targets higher depending on price action and how the market reacts to the dollar for the next couple of days. I’ll probably wait until the manufacturing PMI report though, before I put on my orders.
What do you think? Is this a valid setup for a swing trade?