Forex Trade: GBP/USD’s Downtrend Retracement

Is GBP/USD headed for more losses? Here’s a forex trade for those who think the pound is a weaker bet than the dollar!

If you were around during the BOE’s “Super Thursday” event yesterday, then you should know that the Monetary Policy Committee (MPC) members aren’t feeling too super about the economy as before. For starters, Ian McCafferty, the lone hawk in the group, turned to the dark side and stopped his calls for a rate hike. The MPC also decided to not only cut its growth forecasts, but extend its low inflation estimates. Uh-oh.

GBP/USD: 4-Hour Forex Chart

GBP/USD: 4-Hour Forex Chart

On the technical front, we can see that GBP/USD is having trouble breaking above 1.4600. This is interesting not only because it’s a major psychological handle, but because it’s also near a 61.8% Fib and 200 SMA resistance on the 4-hour time frame. Oh, and Stochastic is also in the oversold zone! Neat, huh?

After seeing those long wicks and a couple of bearish candlesticks, I’ve decided to short the pair at market. Here’s what I’m planning for this setup:

Shorted 0.25% risk at market (1.4558), max stop at 1.5300, initial profit target at 1.4100

Shorted 0.25% at 1.4900, max stop at 1.5300, initial profit target at 1.4100

I know that the Fed members aren’t excited about further raising interest rates themselves, but I think that the Greenback has better chances against the pound especially when we’re mostly trading risk-averse environments. In any case, I’ll keep close tabs on this trend play and see if there are any catalysts that might change Cable’s overall downtrend. Maybe today’s NFP report can give the pair a clearer direction?

What do you think? Has the pound taken enough hits against the dollar, or do you also think that the chart above reflects a retracement that we should take advantage of?

Don’t hesitate to share your two cents!

XOXO,

Huck

P.S.: Remember to never risk more than 1% of a trading account on any single trade and to adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Better yet, read the Risk Disclosure!

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  • Sweet im also in on this trade in profit now, seems the middle bb band wants to hold on thr 4hr…could i ask why your stop is at 153.00?

    • forzion

      I think because there seems to be a strong resistance because there was the peak of last short lived rally and also previous support which was broken

      • I see..are you going to gold over the weekend?

        • I’m still holding this position open and so far it’s working well. I’ve removed my second order for now and placed my stop loss back to break even. I’m now thinking of adding the second order if price makes a new low.

      • Yep I’m looking at a previous resistance on the longer-term time frames. Fingers crossed that we’ll finally see some action from Cable!

    • Congrats on your profits! This is more of a long-term trade for me. As long as the Fed is planning on rate hikes this year then it’s still a bit ahead of the BOE. Where are your stop loss and profit targets? Or have you taken profits already?

  • forzion

    I am looking to similar setup. I have now one short open at 1,4600 and adding to it aroung 1,4800-1,4900 if it goes higher and it is possible if the dollar losses ground further. Now it is a competition which of these two would be weaker and the NFP can have a big impact now.

    • Hey, forzion!

      The NFP provided a temporary boost for the dollar. Right now GBP is losing against most of its counterparts save for the dollar. Is your trade still open? 🙂

      • forzion

        Yes, my trade is still open. I am not changing my bias for now. It went through my break even so I can risk zero profit if it goes back to 1,4600. Now it seems that it is more about which currency would be weaker than about strenght

        • Looks like the downtrend still has momentum. Are you planning on making trade adjustments?

          • forzion

            Well, I am playing this medium term now, so I am considering to add to my position if there would be for me valid signal mainly in H4 frame. There is possibility that it can go higher if the pound gets some ground and dollar would be weaker. Then I plan to enter around 1.49 another position because I think that the price can go back to recent lows again. If it holds then I am looking to see it breach of recent lows and wait for retracement to scale in.

          • Decided to close my position after seeing that it’s not breaking below 1.4100 and, as you said, there’s a possibility that the pound could gain ground against the dollar. Will you consider adding to your shorts now that it has moved by a lot since your 1.4600 entry?

          • forzion

            Fortunately my position is still open. The rate is now too low to add to it because there is now only around 400 pips to 1.3600. It can go lower but I expect it to bounce a bit before adding to my position. I can close my position to fix my profit but I would rather fix it by opening a long position so if it goes up I do not lose my profits and if it goes lower I can have some profits of it.

  • Pingback: Forex Trade Updates: GBP/USD and USD/JPY Shorts()

  • Well, there’s no standard behavior for breakouts, but some scenarios that could happen include the pair making new lows and/or retracing a bit before making new lows. You can reasonably expect some gains once you see reversal or a couple of bullish candlesticks. The School of Pipsology has a nice and newbie-friendly section on them: http://www.babypips.com/school/elementary/japanese-candle-sticks