Short-Term Swing on GBP/USD

Nice price action from Cable this week and it may not be over yet with important U.S. data coming up and a nice Fib play setting up.

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GBP/USD 1 Hour Forex Chart

GBP/USD 1 Hour Forex Chart

Cable has been beaten down on a combination of weaker-than-expected U.K. data (BBA Mortgage Approvals and CBI Realized Sales) and stronger-than-expected U.S. data (durable goods and housing data).  I don’t know how long this shift in sentiment will last, but we’ve got U.S. GDP data coming up later today that could spark more momentum for the Greenback (or some tradable volatility at the very least). Plus, we saw broad risk-off moves in the Wednesday U.S. session, which may continue to support safe havens like the U.S. Dollar in the short-term.

Technically, Cable is pulling higher after hitting a wall of buyers at 1.6700. I’ve marked 1.6750 as the previous major support area that was broken and may now be resistance, but because of U.S. GDP data coming up, I’m going conservative with this trade by waiting for a retest of the 61% Fibonacci retracement level of the recent swing lower.  My target is the next potentially strong support area, last tested at the beginning of April. Here’s what I’m doing:

Short half position GBP/USD at 1.6770, stop at 1.6840, 1.6650

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 1.70:1. 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!

  • ForExchange

    Hi Pipcrawler,

    Hmmmm…. the idea itself I like it, but these Fib levels… You did not use the high point of the chart, but only you took the downtrend of a couple of hours. Do you think it is a relevant Fib retracement? I am not sure about this one.

    Good luck though

    • Pipcrawler

      Hey ForExchange, I actually did draw Fibs on both swing highs, and since the Fib areas pretty much overlapped each other, I decided to go with the lower Fibs because it was the most recent move lower. So, either way, if if the market does get up around 1.6750, there’s a good chance we’ll see sellers try to make another go lower. We’ll see!

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