Cable short trade idea

The sterling has had a tough run over the past six months, particularly against the greenback.

Source: Bloomberg

From trading at around $1.7200 in July last year, GBP/USD has since declined to around the $1.5000 region. It’s hard to believe not too long ago the Bank of England (BoE) was starting to adopt a hawkish bias, with Governor Carney talking up rate hikes.

This drove the sterling higher against the greenback heading into the end of the Fed’s QE. As tapering came to an end, it wasn’t long before we saw the greenback accelerate exponentially, while global growth concerns weighed on the sterling.

This year we have since seen cable dip below $1.5000 with the pair trading to a low of $1.4950 (lowest since July 2013). While we have since seen a bit of a recovery off these lows, the pair is still in a downtrend and traders are likely to continue favouring shorts.

There is a downtrend resistance line that has been in place since the pair peaked last year and this line currently comes in at around $1.5200. This level is also the 38.2% retracement of the recent drop from January highs to the lows.

I feel this region presents ideal selling opportunities, particularly heading into next week’s inflation report. Traders selling in the $1.5200 region could consider stops at $1.5370 and near-term targets to $1.5000.

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