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GBP/USD Strategy: Looking to Enter Short Above 1.25

GBP/USD Strategy: Looking to Enter Short Above 1.25

Ilya Spivak, Head Strategist, APAC

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The British Pound may be resuming the down trend against the US Dollar that was started in the wake of July’s Brexit referendum outcome. Prices have broken below rising trend line support guiding the corrective upswing from lows set in early October, suggesting the dominant down bearish bias is being reasserted. The move lower was catalyzed by the unexpectedly hawkish tone emerging from December’s FOMC monetary policy announcement.

Near-term support is now at 1.2411, the 23.6% Fibonacci expansion, with a daily close below that opening the door for a move down to test the 38.2% level at 1.2186. Alternatively, a move back above 1.2550 – the intersection of trend line support-turned-resistance and the 14.6% Fib – paves the way for a retest of the December 6 high at 1.2775.

The available trading range is narrowly broad enough to make room for an actionable short trade setup but prices need to get to 1.2504 or above to satisfy acceptable risk/reward parameters. With that in mind, I have established an entry order to sell GBP/USD at that level. If the trade is activated, it will carry a stop-loss triggered on a daily close above 1.2550 and initially aim for a return to 1.2411. I will take profit on half of the position if that objective is subsequently hit and move the stop-loss to breakeven.

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