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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! GBP/USD Forums
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