Trade idea: buy GBP/USD

Formation of rising wedge puts the rally into doubt, thus adjusting stops and targets seem sensible to reflect this.

Pound and dollar
Source: Bloomberg

Stop loss now moved to $1.4270, with target moved to $1.4400 for GBP/USD. Risk to reward remains around 3:1.

Rationale for the adjustment

We have seen the pullback for entry into this trade, alongside a subsequent rally (up over 100 points this morning). However, the formation of a rising wedge, alongside weakening signs in oil points towards a lower confidence that this move has legs. We are seeing some strength coming back into play, with a bounce from trendline support and the 70% retracement (both previous rallied have come between 67-70% pullbacks.

This gives us the potential for another move to the top of this range, which provides us with the $1.4400 target. To the downside, the break of trendline support would provide a bearish signal and thus a stop loss of $1.4270 reflects this. Alternately, a stop loss below $1.4230 would trade a less preferential risk/reward ratio for a greater chance that this is simply a deeper retracement.

To me, it boils down to your view of oil and I am starting to see signs of a bearish turnaround which would negatively affect this pair. 

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