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Thursday, November 02, 2006

Longer Term GBP/USD Trade Setup:

As promised here's a longer term trade setup that I will be watching for:

Here we have a daily chart on GBP/USD. In the past month, we've seen the pair move from approximately 1.8500 to about 1.9100 - that a 700 pip move!!! Recent weak US data has been the reason we've seen a rally in Cable against the Greenback, but I will be looking for a sell off for a few reasons.
  1. I think we will see profit taking if the pair fails to break the previous year high of 1.9143.
  2. Stochastics are currently showing that GBP/USD is overbought.
  3. The price is currently at the upper Bollinger band set to two standard deviations. Another indication of overbought market.
  4. Recent COT data has shown a decline in net long GBP positions over the past 3 months.
So, if a USD correction does take place, I think we'll see a pretty big move to the downside. Here's a trade idea that I will be watching:

Short GBP/USD @ 1.9040, stop @ 1.9150, pt1 @ 1.8940, pt2 @ 1.8760

Because of the wide stop, I would recommend trading this with smaller lot sizes.

Our biggest risk is a slowing US economy and more negative US data, so we'll keep an eye on fundamentals in the next coming weeks.

Good luck and good trading everyone!!!!

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