Analysis: Key Cycle Point in Sterling
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
Charts Created using Marketscope – Prepared by Kristian Kerr
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:
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 email@example.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.
Need guidance managing risk on trades? Download the free Risk Management Indicator.
To receive other reports from this author via e-mail, sign up to Kristian’s e-mail distribution list via this link.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.