Cable makes this week’s watchlist with a couple of technical analysis arguments that the rally may be stalling out.
Bearish Divergence on GBP/USD?
Looking at the daily chart above of GBP/USD, we can see that Cable is bouncing back in 2019 after a steep fall from around 1.4400 to the December lows around 1.2500, currently trading around the 1.3200 – 1.3300 area. It’s probably safe to say that the bounce stems from a combination of the Fed pulling away from the rate hike rhetoric of 2018 to a more “patient” stance, and positive sentiment on Sterling that the odds of no-deal Brexit have been falling, especially after last week’s votes to extend Brexit.
So, a lot has been going on for both currencies, but it’s not over yet with the Brexit deadline coming soon on March 29th, and the FOMC giving its latest monetary policy decision tomorrow. Both are potentially big time market moving events, especially if certain surprise scenarios play out (e.g., the Fed shift back into hiking mode, a Brexit deal is passed by U.K. Parliament), but with uncertainty so high, I’m going to stay in watchlist mode for now.
The setup I’m seeing is a potential technical short play as we see resistance behavior and divergence with the stochastic indicator as the market trades in the 38% – 50% Fibonacci area. If the market gets up to the 1.3400 – 1.3500 and we start seeing reversal patterns there, I will likely put up a plan to take a nibble short, and possibly ramping that up if the Brexit situation turns negative.
So be on the lookout for a new trade idea if that scenario plays out, and until then as always, 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 simply follow what I do.
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