While fundamentalists would like to encounter the results of technical analysis or some time even discard it, we at FxWirePro, don't. Recent move in Pound/Dollar is a nice example of why we don't. Yesterday, as Dollar took a heavy beating, after European Central Bank (ECB) expanded stimulus at slower pace and while most of the focus was on Euro, Pound crept higher from its channel floor.
We do agree that fundamental change can sometimes break any technical levels, for example Swiss National Bank's removal of EUR/CHF floor, but strangely enough more often than not, fundamental happenings fall in line with prior technical indications.
So, Pound's rise from channel floor, do demand greater attention and especially with FED rate hike approaching. While short Euro has been extreme sentiment trade, Long Dollar has been much more extreme, so slight profit booking could lead to massive volatility in exchange rates.
Pound's rise from channel floor, with candle formation engulfing last seven days price action is pretty significant.
Trade idea -
We had two calls on pound, one to go short around 1.52 and 1.54, with stop loss around 1.58 and target at 1.475, 1.455 and 1.42 area. The other one to go short pound at 1.517 targeting 1.494 area and has reached target.
Despite our short view, Pound might gain in the near term.
Since risk/reward is very attractive, we prefer to go long in Pound around 1.506 area targeting 1.528 and 1.54 and stop loss around 1.495.
