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Trade Idea: 2011-11-3 2:09

I know Halloween is already over, but I hope I get a treat from the market with this sexy setup I spotted on Cable!

GBP/USD Hourly Chart

The pair has been making lower highs for the past couple of days, forming a falling trend line. I think that sellers still have the upper hand in the market so I plan on jumping in on the trend when the pair pulls back to the 61.8% Fibonacci retracement level. If you’ve noticed, the area around 1.5980 coincides with the trend line. Sweet, eh?

My fundamental reasoning is pretty simple. Even though euro zone financial officials have agreed on a bailout plan, there is still a lot of uncertainty surrounding euro zone’s future.

In fact, just a few days ago, Greek Prime Minister Papandreou spooked the markets when decided to hold a referendum on the EU loan package. It triggered a wide-reaching case of risk aversion that resulted in a huge Cable sell-off. I think this will continue today, especially with the G20 summit and U.S. non-farm payrolls coming up.

There are a couple of important economic reports due today but I think the main event to watch out for is the speech by BOE Governor Mervyn King. In the past, his speeches tend to have a negative effect on Cable, so I’m thinking the same will happen later.

Based on my technical and fundamental biases, I’m going to short Cable. Here’s my plan:

Short GBP/USD at 1.5980, SL above the most recent high at 1.6050, PT 1 around the swing low at 1.5900, PT 2 yet to be determined.

I’m feeling good about this trade idea. I hope it works out.

XOXO,

Huck

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