GBPUSD: Breakout Play on the Cable

FX:GBPUSD   British Pound / U.S. Dollar
The cable has been trading in a 215 pip wide bearish parallel channel on the hourly timeframe for over 16 days, providing several opportunities to sell the high along the way. Fundamentally the USD is king, with the Dollar Index             printing four consecutive weeks of gains and finally breaching the key 100 level. The GBP on the other hand has softened even though the BoE are next in line to hike rates after the FED. This softening was aided last week by comments from Governor Carney, who said a stronger GBP is negative for the economy.

When the pair finally broke below and closed below the lower channel trend line last Friday, it subsequently retraced back into this broken support and tested it twice where it acted nicely as resistance. The odds are that this was not a fake out and that price will continue to move in the direction of the breakout, since at this level, after the original break out, there still is more selling than buying interest. This was confirmed by the fact that in between both tests of resistance, this pair moved passed the low of the breakout candle. We now have a potential break out play here and I put this trade candidate on my watch list. Provided the “weekend gap” does not disturb this picture, I will be looking to sell this pair at this level after the Asian open.

SL goes inside the channel, 30 pips above the tested resistance. TP1 = trade risk, TP2 = price calculated by taking the height of the channel and extending it in the direction of the breakout. In terms of trade management, when TP1 is hit I would take profit on 1 position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.

There are 195 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 4.0!
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
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