GBP/USD: Severely Oversold?

Trade Idea: 2011-11-10 00:25

“Curl your hair, while the iron is hot.” That’s one of my philosophies in life. I missed out on a couple of good moves yesterday but today will be different. I see a very promising setup on GBP/USD and there’s no way I’m missing out on the opportunity to make pips. Ladies, gentlemen, and monster, I present to you one of my most aggressive trades so far…

GBP/USD 1-Hour Chart

Looking at the charts we see that Cable has found support at 1.5900, around its previous lows. With Stochastic already indicating oversold conditions, my plan is to buy the pair at market and catch a retracement. I’m looking to take profit between the 38.2% and 61.8% Fibonacci retracement levels, around 1.6000 to 1.6050.

If I see reversal patterns indicating that the pair is finding resistance, I will pull-off a stop-and-reverse strategy and short the pair. My first profit target will be at 1.5900 and I will determine my second one as my trade plays out.

But what if there aren’t enough buyers in the market to push GBP/USD back up to 1.6000? Ha! I have a plan for that too. I placed the stop for my long trade at 1.5870. Once the pair makes a new low and stops me out, I will just ride the downward trend.

I know that fundamentally, the U.K. isn’t doing very well. Nevertheless, I think traders have priced in their expectations already and there are no one left to sell… at least for now.

The event risk for the day is the BOE’s interest rate statement. Despite this, I decided to just go ahead with my trade because I believe they won’t be doing any changes to interest rates. After all, they already promised an additional 75 billion GBP in their last meeting.

What I expect from the BOE is cautious yet optimistic tone, especially after last month’s announcement of additional quantitative easing. This could be temporarily bullish for the pound.

Alright, to recap, here’s my plan:

Long GBP/USD at market (1.5930), first PT at 1.6000, second PT yet to be determined. Stop at 1.5870.

XOXO,

Huck

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