Swing Trade on GBP/USD: Short At the 100 SMA

Trade Idea : 2013-7-13 4:58 am EST

GBP/USD 1-hour Chart

Earlier this week, I mentioned that I had a dollar bullish bias. It was clearly seen in the setups I pointed out on USD/JPY and EUR/USD. However, I could not find good setups on those pairs so I decided to search for opportunities elsewhere.

After a couple of hours of looking, I found a nice short setup on GBP/USD‘s daily chart. As you can see, the pair has retraced quite a bit as it is now approaching the 100 SMA. What makes this level important is that it also lines up with the 50% Fiboancci retracement level.

Now, I’m not saying that price will truly find resistance here, but there is a reasonable chance that it will, as it already found resistance at the 100 SMA in the past. Because of this, I’ll be watching the level carefully for reversal candlestick patterns for a potential short.

After all, nothing much has changed on the fundamental landscape. The Fed is pretty much the only major central bank that is considering withdrawing stimulus measures while all the others are thinking of ways to ease monetary conditions even further.

Sure, good ol’ Big Ben got the dollar sold off this week when he sounded dovish in his speech. However, I think that he was merely trying to manage market expectations, keeping investors from getting too excited about the Fed tapering its asset purchases.

The way I see it, the dollar is still a good buy because of the growing divergence between the Fed’s monetary policy and those of the ECB, BOJ, RBA, and BOE.

However, as confident as I am of my bias for the dollar, I haven’t decided on an exact entry on GBP/USD! I also have yet to determine my stop and profit target levels. I’ll update you if I do decide to jump in short!

Have a great weekend!

XOXO,

Huck

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