I’m laying out a small short position ahead of potentially economic releases that could have forex traders pushing the British pound lower.
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I think the biggest catalysts for the British pound this week are the Bank of England (BOE) inflation report and the monthly read on U.K. unemployment data. Of course, we don’t know what the data will be until we get there, but I think with the annualized CPI data coming in lower and lower since the last inflation report in August, I think the odds probably favor dovish comments from the BOE on inflation. If that’s the case, then of course this brings more support to the idea that the BOE doesn’t have to rush into a rate hike for the U.K. As far as the U.K. unemployment data, the market is actually forecasting improvements on the previous reads, mainly a dip in the unemployment rat to 5.9% to 6.0%. This could limit bearish moves if we see them, but again, we’ll just have to see when we get there.
For now, I think the inflation report will be the big mover for Sterling and with the market moving in a downtrend, I’ve already laid out a small position at market. I’ve set a wide max loss level, but I won’t hesitate to close down early if the market moves above the moving averages and holds there. My max target is the next potential support area–the 2013 summer resistance area–but I don’t plan on holding this trade too long with major U.S. data coming up on Friday (retail sales and consumer sentiment data). Here’s my plan:
Short GBP/USD half position at market (1.5850), max stop at 1.6050, max profit at 1.5650
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 1:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to re-assess, close out losses quickly or add to my position to maximize any gains. Stay tuned by following me on Twitter and Facebook!