Last week saw a net win for the Cable of 130 pips, mainly due to a strong rally on Wednesday fueled by solid UK employment numbers with average earnings at 3% and the unemployment rate at 5.4%, a 7-year low. This strengthened the Pound while bad US retail and ppi data weakened the Dollar. Not all data was good for the Pound last week, as the latest cpi numbers (an indicator for overall inflation) entered into negative territory and is pointing to deflation, which lowers the expectations for a rate hike. The low energy prices, which are beyond the BoE´s ability to control, contributed to this. In a way the BoE is in the same situation as the FED, both oversee (relatively) strong currencies and are looking for a hike but both are waiting for inflation to pick up and reach its target first.
On the technical side, the Cable has been trading in a bullish parallel channel on the daily since the beginning of this year, testing its resistance three times and its support twice. More recently it started trading inside two converging, downward sloping (falling wedge-like) trend lines testing both of them three times. The most recent test of resistance happened at the end of last week and the pair lacked the strength to break above and close above it and instead printed a spinning top followed by a bearish candle pointing to a reversal. This aligns nicely with the hidden bearish RSI divergence, which indicates underlying weakness. The preliminary UoM consumer sentiment beating expectations on Friday and the UK dipping back into deflation might help push it down so I am looking for a sell.
My stop goes above the aforementioned resistance. If price breaks it, the trade becomes invalid and when I am wrong I want to be out of the market without hesitation. TP1 is the support of the bullish channel. TP2 lies on the lower of the two downward sloping trend lines, in case price would continue to fall and test it. See the chart for details. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade towards TP2. As always consult your own trading plan and apply the rules of entry, exit and risk management you normally use and are comfortable with. This is not a signal, just an explanation of the reasoning and thought process behind a trade I am looking to enter.
There are ± 450 pips to be made and the trade has a reward – risk ratio of 5.0!
On the technical side, the Cable has been trading in a bullish parallel channel on the daily since the beginning of this year, testing its resistance three times and its support twice. More recently it started trading inside two converging, downward sloping (falling wedge-like) trend lines testing both of them three times. The most recent test of resistance happened at the end of last week and the pair lacked the strength to break above and close above it and instead printed a spinning top followed by a bearish candle pointing to a reversal. This aligns nicely with the hidden bearish RSI divergence, which indicates underlying weakness. The preliminary UoM consumer sentiment beating expectations on Friday and the UK dipping back into deflation might help push it down so I am looking for a sell.
My stop goes above the aforementioned resistance. If price breaks it, the trade becomes invalid and when I am wrong I want to be out of the market without hesitation. TP1 is the support of the bullish channel. TP2 lies on the lower of the two downward sloping trend lines, in case price would continue to fall and test it. See the chart for details. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade towards TP2. As always consult your own trading plan and apply the rules of entry, exit and risk management you normally use and are comfortable with. This is not a signal, just an explanation of the reasoning and thought process behind a trade I am looking to enter.
There are ± 450 pips to be made and the trade has a reward – risk ratio of 5.0!
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
