Forex Trade Idea: GBP/CAD Fib Short

I’m going with a simple Fibonacci short play on GBP/CAD ahead of potential Sterling volatility and today’s positive oil data.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

GBP/CAD 4-Hour Forex Chart

GBP/CAD 4-Hour Forex Chart

This is mainly a technical play on GBP/CAD, which recently tested an area of previous strong interest highlighted in the four hour chart above. Between the end of February through March, the 1.8750 handle went from a strong support area, to breaking and turing into a resistance area before the pair fell further.

Now having bounced back, the pair is back to retest that area of previous interest, which also happens to be the the 61% Fibonacci retracement area of the latest swing lower from roughly 1.9100 to 1.8100.  This level does attract those looking to get into a trend at a better price, and with the market testing and reversing back lower, I think we’ve got a valid sell signal on the pair.

Besides a being a technical setup opportunity, I think the upcoming slew of U.K. top tier events (Bank of England Inflation Report & Monetary Policy decision) has a good chance of bring volatility to Sterling, and based on Forex Gump’s “Economic Snapshot” of the U.K., there is a chance we could get some dovish talk on the growth outlook. On the other side of the pair, we just got oil inventory data coming in much lower than expectations, giving oil bulls (and Loonie bulls) a little bit of a lift on the session (WTI crude currently up +3.58% to $46.26 on the session).

Given that information, I decided to go ahead and jump in the market with a nibbler position. Here’s what I’m doing so far:

Short half position GBP/CAD at market (1.8573), max stop at 1.8825, max profit target at 1.8105

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.92:1.  As with most of my trades, I do look to add and max my risk out at 1.00%, but I’ll wait until after the Bank of England events to make that decision.

Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

  • fbustamante

    Hey Pipcrawler, thanks for sharing this analysis. I’m also following closely this price action. My SL triggered at 1.8620 closing my short position I opened at 1.8565, following the money management rules. Are you still short on this?

    • Pipcrawler

      Hey fbustamante…I’m still in it as the resistance area hasn’t been invalidated yet, my stop is wide and I’ve got a tiny bit of risk on. The broad Loonie weakness is out of the blue, so I may make an adjustment soon. Stay tuned!