Trade Idea Marathon: Will the Falling Trend Line on Cable Hold?

Trade Idea: 2011-5-18 2:38

GBP/USD 4-hour Chart

The short-term trend is obviously downwards as evidenced by the lower highs and lower lows. I DON’T want to fight the trend, so I’m gonna wait for GBP/USD to retrace some of its move before jumping in.

Also, stochastic still hasn’t reached the overbought territory yet which could mean that the bulls may have some steam left to take it higher. I’m expecting the pair to retest the resistance at the falling trend line before going down, down, down!

I’ll probably jump in somewhere between the 38.22% and 61.8% Fibonacci retracement levels, probably around 1.6350. Of course, I’ll only sell if I start seeing bearish reversal candlestick patterns. My stop will be above the 1.6400 resistance level and I’ll take profit on half of my position at yesterday’s low (1.6150) while I let the remaining position run.

I think whether this trade will work out or not will depend largely on the upcoming MPC Meeting Minutes later today and retail sales data tomorrow. These reports tend to have a hefty effect on Cable’s price action.

For the meeting minutes, the market expects a 3-0-6 split, with 3 members voting for a rate hike and 6 voting for no change. If the minutes show that the Bank of England (BOE) remains bearish on the economy and have no plans on hiking rates, then my trade will probably work out. On the other hand, an optimistic report could lead to a serious rally in the Cable.

As for the retail sales report, the expectation is a 1.0% increase in addition to the 0.2% rise seen the previous month.

If you have a counter-argument to my trade, feel free to comment and convince me NOT to go short! I’m not saying I’m going to agree with you… but I’m not saying I won’t either.

  • Lubor Hrivnak

     Can I have a newbie question? Will you exit this trade, if fundnaments bring positive news for GBP?

    • huck

       If the reports come in better than expected, and price doesn’t stall on the falling trend line, I certainly won’t take the trade. 🙂

  • Dean FX Paul

    The UK figures just out such as weak labour would probably keep things heading down for the time being today, along with some OK US mortgage figures. Although in the long-term over the next few weeks, I’m betting on a return to the weekly up-trend on G/U.

    PS- Nice chart.

  • Seánie 숀 Hocko

    Just looking at this now, I wonder did you take this trade seeing as it never hit 1.6350.

    It is now at 1.6150 which is nearly at the bottom trend line on the 4hr chart. I am going to buy at this price with a limit of 1.6250 and a stop of 1.6090.

    At this point there is a long red marobozu and a long-legged doji which signals a weakening in sellers and possible trend reversal.

    The resistance line of 1.650 is being tested and I think price will go up now for a while.  If price breaks through the upper resistance line in your chart I will probably buy again tomorrow.

    Anyway, I am brand new to this forex game so I’m probably talking rubbish.
    Maybe you can point out any mistakes I’ve made.

    • huck

      Hah, it’s not rubbish. I’m a newbie as well.

      I wasn’t able to take the trade because it fell without touching my desired entry point. I’m trying to avoid going long on the pair now just cause the trend is downwards.

      Though if you’re going to buy, going for small quick pips might be good!

  • keio pamudji

    Hi, I also have newbie question here. 
    Will the pair reverse into bullish? I’d love to trade but concern when looking at daily chart, the stochastic shows oversold and possible reversal hidden divergence

    • huck

      Those are valid technical signals in my opinion, but you’re going to need confirmation in the form of bullish candlesticks. That’s just my opinion though!