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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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
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!