Forex Trade Idea: GBP/USD Pullback in Downtrend?

Taking another crack at GBP/USD now that the forex pair has bounced higher & testing a broken support area, and closing down recent untriggered trade ideas.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

GBP/USD 1-Hour Forex Chart

GBP/USD 1-Hour Forex Chart

This is mostly a technical setup with a little bit of bullish USD sentiment and a set of U.K. data coming up that may come in weak.  On the chart, we’ve got price action tightening up after rallying in the past week, indicating that the move may be running out of steam.  It’s also slowing down at an area of broken previous support and the Fibonacci retracement area; chart patterns that do tend to hold as resistance.

Fundamentally, the Greenback has underlying support sentiment on the idea that we’ll get an interest rate hike from the FOMC in December, which is much earlier than when we may get one from the Bank of England (if there is one coming). Also, we’ve got a good amount of economic data from the U.K. and U.S. this week, forecasting improvements for the U.S. and declines from the U.K. While I don’t know what the data brings until I get there, the odds look like they favor the Greenback at the moment.  So, I’ve decided to short Cable near market, with my stop above the Fibonacci retracement area and my max target at the major psychological handle below. Here’s what I’m doing:

Short half position GBP/USD at 1.5200, max stop at 1.5375, max profit 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 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.14:1. 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!

Also, I closed my order to short GBP/NZD at 2.3500 and my long USD/CAD order at 1.3200. I’m not loving going long the New Zealand dollar ahead of Global Dairy Trade and quarterly inflation numbers, and it looks like I’ve missed the boat on the USD/CAD rally with the pair breaking 1.3350 and making new highs as I type.  Both are no trades, but I’ll continue to watch’em as volatility should be high on both pairs this week.  Stay tuned!