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Analysis: Key Cycle Point in Sterling

By , Sr. Currency Strategist
04 April 2013 20:01 GMT

We typically try to refrain from positioning around big event risk like Friday’s US non-farm payrolls release. Occasionally, however, opportunities present themselves that warrant taking such risk. Cable could be one of these instances. Following a couple of weeks of very choppy trading the exchange rate has reached a point from both a price and timing perspective that should provoke an important move. The key question now really is in which direction?

The second half of this week has been important from a cyclical perspective. There is a Gann relationship with the year-to-date high recorded on January 2nd (90 degrees in time) as well as a Fibonacci time relationship with last month’s low. During these cyclical windows we look for changes in trend. With the extreme volatility seen on Thursday the picture has gotten muddled a bit as there is now a chance Thursday’s lows was the turn we were looking for. However, given the broader downtrend in place since the start of the year and the importance of the 1.5250 level (50% retracement of the 2009 range) we like positioning here for a possible downside resumption from a risk to reward perspective.

GBP/USD Daily Chart: April 4, 2013

PT_range_trade_gbp_body_Picture_2.png, Analysis: Key Cycle Point in Sterling

Charts Created using Marketscope – Prepared by Kristian Kerr

The Trade

Friday’s NFP data will force us to alter our trading strategy a bit. We want to see a move to new highs on Friday above 1.5260. We will then look for a weekly close back under 1.5250 and this will be our short entry trigger. If Friday’s high is less than 60pips from our entry that will be our stop level, otherwise we will just use a monetary stop of 60 pips from entry. If GBP/USD does not close the week below 1.5250 then the trade will be voided.

Event Risk Over Coming Sessions:

PT_range_trade_gbp_body_Picture_1.png, Analysis: Key Cycle Point in Sterling

Source: DailyFX Calendar

LEVELS TO WATCH

Resistance: 1.5250/60 (50% retracement of 2009 range/March high), 1.5300 (big figure)

Support: 1.5195 (Gann level), 1.5095 (38% retracement of late March advance)

STRATEGY – Buy USD/CAD

Entry: Weekly close below 1.5250

Stop: Above Friday’s high, but no more than 60 pips from entry (-60 pips)

Target 1: 1.5095

Target 2: 1.5010

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter at@KKerrFX.

Are you looking for other ways to pinpoint support and resistance levels? Take our free tutorial on using Fibonacci retracements.

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04 April 2013 20:01 GMT