Michael Harding
3
All posts from Michael Harding
Michael Harding in Michael Harding,

April 11 2016 – How to Trade GBP/USD?

Whenever I start to analyze a currency pair, I always start by looking at the larger timeframes to give me a better sense of what’s going on overall. I start by taking a look at the daily chart which still shows that this pair is under pressure but seems to have found a near-term bottom around the 1.38 handle. Currently this pair trades at 1.4232. The next major resistance level to monitor is the 1.43. On the downside, 1.4170 and pretty much every 30 pips below could potentially be a level of support. If you take a look at the 1hour timeframe, you’ll see what I mean.

Now the question is, what are the chances of this pair falling all the way back down to 1.38? Well one of the main culprits that caused this pair to fall as far as it did was the whole UK referendum known as the Brexit which caused major fear in holding long positions in the British currency.

The referendum on Britain’s membership of the European Union will take place on Thursday 23 June 2016.

Historical polling data shows the changes in support for the EU over the years.

In the early 1980s support for Europe was its lowest level but by the early 1990s it reached its peak.

The mid-1990s saw the gap between the “stay in” and “get out” camps narrow significantly and on occasion “Brexit” has been a more popular option.

Since 2014 support for staying in the European Union increased once again.

Support for Britain withdrawing from the EU fell to one of its all-time lowest levels in June 2015 but the gap narrowed significantly in September.

Since September, “Remain” has held a consistent lead over the “Leave” campaign, retaining between 55 and 51 per cent support in the referendum’s poll of polls.

Now taking a look at U.S fundamentals for a second, the primary driver for the greenback is “when will the Fed raise interest rates?” By the sounds of it, it doesn’t seem like they have any intention of raising rates anytime soon based on Janet Yellen’s last statement.

So, how do we trade this pair? Well there is no one simple answer. In fact, there are many ways to make profitable trades with the GBP/USD. What’s important is to set a plan and stick to it. I could tell you to start buying GBP/USD now and for every 100 pips it’s moves below, add another position. This strategy is called “Averaging Down”. But you need to determine for yourself if it’s a good risk management approach. Another option would be to wait for further clues and confirmations of which direction this pair wants to trade. Just because overall the bias is towards going long, doesn’t mean we should execute long trades now.

If we take a look at the pair on a 1hr timeframe, RSI is now trending below 70. 4hr timeframe has what could be considered a shooting start and I can tell simply by looking at the last 3 candles that topped off this pair.

By now, hopefully I’ve given you enough insights into how to trade this pair. It’s now up to you to decide. Happy Trading!