We’ve had GBPCAD in our crosshairs for the last few weeks. In fact, I traded the pair twice last week, which is quite a lot considering I average just five trades each month across all currency pairs.
The first setup materialized after the pair closed below the area between 1.7010 and 1.7043. The subsequent retest of 1.7010 as new resistance caught our attention and less than 72 hours later, our 300 pip target at 1.6700 was triggered.
The second setup, on the other hand, wasn’t so successful. I sold the pair on a retest of the 1.6700 area after being broken on a daily closing basis. While the level managed to hold as new resistance briefly, it eventually gave way resulting in a 0.8R loss.
Still, the final result of both trades worked out to a 3.5R profit (4.3R less 0.8R) or a gain of 7% if risking 2% of your account balance on each trade.
Now that the pound cross has had a few days to settle into its new position back above 1.6700, we can see that a pattern has emerged via the 1-hour chart. The ascending channel extends from the August 16th low at 1.6605 and has already come under fire on several occasions.
But a familiar area may bring an end to the relief rally. The area between 1.7010 and 1.7043 that triggered last week’s profitable short setup is under pressure as I type this.
So what’s the game plan?
While a short from the critical resistance area could prove successful, I prefer waiting for a break of channel support. Such a move would offer a setup with a higher degree of conviction and would also give us a favorable place to “hide” our stop loss.
You could make a case for trading this channel on the 4-hour chart rather than the 1 hour as both have held up relatively well. But as always, the final decision is yours as it depends on your style of trading as well as the plan you’ve laid out for yourself.
A move below channel support would likely encounter bids near the 1.6600 handle followed by 1.6400, a level that played a crucial role between October of 2009 and 2011. Alternatively, a close above 1.7043 would negate the bearish bias for now and turn our attention higher.
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