Pick of the Day: GBP/USD

PoD Chart

Tonight’s trade idea is on Cable, and it’s not for the faint of heart. My question is, “who’s ready to catch a falling knife?” I am!

I thought i’d close out the volatile week with a very contrarian play on Cable. GBP/USD has dropped like a rock in August for every reason under the sun: falling home values in the UK, dovish comments from BOE members, and the possibility of a recession. It’s no wonder why we’ve seen the Sterling fall almost 8%…so, why do I think the pair is ready to turn higher?

I don’t know whether one way or another, but there are a couple of classic chart patterns signaling we may see a short term reversal. First, we can see bullish divergence on the chart with lower “lows” in price, while stochastics are creating higher “lows.” Second, we can also see a classic wedge falling pattern which typically signals a bullish bias as well.

Later today, we do have US economic data including personal income and spending, consumer confidence, and Chicago PMI. If weakness in US data is reported, we may see pressure in the Greenback and a rally in Cable.

So, if I see a break above the top trendline, I’m going to:

Long GBP/USD at 1.8365, stop at 1.8280, pt1 at 1.8450, pt2 at 1.8535

Of course, I never risk more than 1% of my trading account on any single trade. With a pretty wide stop of 85 pips I will adjust my position size accordingly.

Will technicals outweigh fundamentals? Let me know what you think!

BabyPips.com GBP/USD Forums
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  • MoreYummy

    There should be a short term bounce in GBP/USD, however in medium term/long term, it will go down sharply.

    This should be a good trade, but the stop lose is kind of high, which is normal.

  • MoreYummy

    There should be a short term bounce in GBP/USD, however in medium term/long term, it will go down sharply.

    This should be a good trade, but the stop lose is kind of high, which is normal.

  • PipWolf

    Looks like the bullish divergence pattern has broken overnight. Do we keep our orders open or close them?

  • qtarch

    The wedge is always dangerous. The stop loss is too big due to its large time frame.

  • PipWolf

    Looks like the bullish divergence pattern has broken overnight. Do we keep our orders open or close them?

  • qtarch

    The wedge is always dangerous. The stop loss is too big due to its large time frame.

  • Pipcrawler

    I’m closing my orders. Fundamentals are definitely outweighing the technical signals!

  • Pipcrawler

    I’m closing my orders. Fundamentals are definitely outweighing the technical signals!

  • glippmann

    Aside from the technical indicators, and for a very short term bounce, keep an eye on hurricane Gustav as it traverses the gulf energy infrastructure. If it causes energy prices to spike, dollar could drop and voila a profit going long gbp/usd. Keep a tight stop and look for a quick exit under this scenario.

  • glippmann

    Aside from the technical indicators, and for a very short term bounce, keep an eye on hurricane Gustav as it traverses the gulf energy infrastructure. If it causes energy prices to spike, dollar could drop and voila a profit going long gbp/usd. Keep a tight stop and look for a quick exit under this scenario.