Resistance on GBP/USD at Previous Consolidation Area?

Forex Trade Idea: 2015-02-23

Cable maybe running into the first potentially strong resistance area since bouncing off of major support at 1.5000? Time for sellers to jump in a renew the forex downtrend?

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GBP/USD 4 Hour Forex Chart

GBP/USD 4 Hour Forex Chart

As always, no one will know 100% whether or not a potential resistance area will hold, but with the longer-term trend in a downward bias and the U.S. Federal Reserve potentially set to raise interest rates, I think there’s a good chance some forex traders may take a nibble in this area as I plan to.

And after taking a look at the forex calendar for the week, I see potential market movers for both the Greenback (Fed Chair Janet Yellen testifying to Senate) and the British pound (second U.K. GDP estimate).  The Fed testimony to the Senate may have more market moving potential as second reads on any economic data point does not usually deviate from the preliminary read, but with the focus of the Fed testimony likely to be on its oversight of banks rather than monetary policy and the economy, I think there’s a low probability of a big reaction.

With all of that in mind, to play the longer-term trend lower, I’m going to scale into the previous consolidation area at the top and bottom of the ranges, with a wide weekly ATR stop from my average entry price. My target will be the swing bottom that held in January.  Here’s what I’m doing:

Short half position GBP/USD at 1.5500, stop at 1.5800, profit target at 1.5000

Short half position GBP/USD at 1.5700, stop at 1.5800, profit target at 1.5000

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 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 3:1. 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.

Also, I’ve decided not to add back the second half position orders to my NZD/USD short and AUD/NZD short trades that I took off on Friday. Got some big potential market movers from New Zealand this week, most notably the Fonterra Milk payout forecast, so I’ll keep my max risk light on both trades, sticking with only half positions for now.

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