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We’ve got top tier catalysts on the way from both the U.K. and Canada pretty soon, and if GBP/CAD can retest a major area of interest, another longer-term short opportunity could be in the works very soon.

GBP/CAD Resistance Retest & Hold?

GBP/CAD 4-Hour Forex Chart
GBP/CAD 4-Hour Forex Chart

Keeping it simple with my latest trade idea this week, looking for a short position in GBP/CAD to play my fundamental bias in favor of the Canadian dollar over the British pound. I lean this way due to how odds seem to be increasing of a no-deal Brexit at the end of this month (Johnson’s ‘final Brexit offer’ set for a thumbs-down from Brussels) and how economic data from the U.K. has weakened recently (Downturn in UK manufacturing continues as rate of job losses accelerates). While over in Canada, the economic updates have been relatively positive (including a surprisingly positive jobs report last month) and the positive interest advantage Canada has over the other major currencies.

So again, I’m looking to get short GBP/CAD, but I’d like to do so after a little bit more bounce to a strong area of interest. Longer-term, the pair has been in a downtrend since May, but rallying over the past couple of months after bottoming out around 1.5900. The market saw resistance in September around the 1.6600 handle before reversing back lower, but it looks like GBP/CAD may be back on its way to retest thanks to a hit in oil prices sending the Loonie lower on today session. It could reach that resistance area again with volatility likely to pick up with Canadian Ivey PMI data coming tomorrow, and always, Brexit drama always adding fuel to Sterling volatility.

Given all that, I will set my short orders right around that resistance area with a two day ATR to give the trade room to breath. My max target will be the this years lows formed back in August to give me an attractive potential return-on-risk.  Here’s what I’m doing:

Short full position GBP/CAD at 1.6590, max stop at 1.6890, max target at 1.5910

I’m only risking 1.00% of my account on this trade and I’ve got max potential return-on-risk of around 2.26:1. I do look to add to this position if triggered and it does go my way, especially if Brexit developments continue to be negative and/or Canadian data continues it’s net positive streak. Of course I look to close quickly as well if those scenarios don’t play out.

What do you guys think? Am I being to conservative with my entry and should short now? Or should I scale in short starting now? Let me know in the comments section below!

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