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