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Hi, forex friends! This week I’ve spotted a bullish technical setup on Cable. While others are probably looking to go long though, I’m looking at it as an opportunity to enter short orders.

As I’ve mentioned no less than a bajillion times before, I’m a long-term dollar bull. I believe that even though the Fed will likely have trouble sticking to their plan to raise interest rates thrice this year, the fact of the matter is that they ARE tightening their policies while other major central banks are busy making stimulus rain for their respective economies.

This is why I got tingles (the good kind) when I saw Cable’s 4-hour and daily time frames. Okay, maybe I was also watching Ryan Gosling gush about “his lady,” but GBP/USD’s setup also looked pretty good to me.

As you can see on the daily chart below, GBP/USD is forming a possible double bottom around the 1.2100 major psychological area with the “neckline” lining up around 1.2700 – 1.2800 zone. Oh, and look at the bullish divergence on the chart!

GBP/USD Daily Forex Chart
GBP/USD Daily Forex Chart

If we zoom in on the 4-hour time frame, we can see that the bulls have actually defended the 1.2100 (which is near the bottom weekly ATR, btw) not once, not twice, but THRICE in the last couple of months. Will the bulls continue to hold the fort? Or is the third time the charm for pound bears?

A quick look at the forex calendar tells me that there are at least three speeches that could push the pound in either direction. I’m seeing scheduled speeches by BOE’s Mark Carney, Fed’s Janet Yellen, and today’s presser by President-elect Trump. Uncle Sam’s retail sales report scheduled on Friday could also fuel any dollar move especially if Trump manages to rock the market boats significantly.

In the U.K.’s camp, I’m counting on more Brexit-related headlines to push the pound lower. Unless Theresa May and/or Mark Carney reassures market players that there won’t be a “hard Brexit,” I believe that market players will continue to equate the Brexit process to uncertainty.

GBP/USD 4-hour Forex Chart
GBP/USD 4-hour Forex Chart

If the pound does see a bounce over the next couple of hours, then I’ll be watching the 1.2300 (which lines up with the 100 SMA) and 1.2400 (which lines up with the 200 SMA and last week’s high) areas of interest closely. And if the pound rally gains steam, then I’ll keep close tabs on the 1.2700 area, which is near a previous high.

But if more forex traders price in their uncertainty (like I’m about to do) over Brexit in the next couple of days, then we’ll likely see Cable drop to new lows instead of bouncing. In this case, I’ll be ready to scale in and start building my short orders. Maybe after it breaches the 1.2000 mark?

That’s it for my watchlist today! I’ll add details of my entry and exit strategies depending on the strength and direction of the pound’s move, but for now, I’m looking for ways to start building a long-term short position.

Got any tips? Where do you think I should enter?

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