GBP/USD Short-term Falling Channel (March 12, 2013)

Cable has been on a downtrend for the past few weeks and has recently made a strong break below the 1.5000 major psychological support level. This confirms that the selloff is really strong and that the pair could be on its way to test the 2010 lows around 1.4300.

At the moment, the pair is trading inside a falling channel on the 1-hour time frame so there could be an opportunity to catch a quick pullback when joining the overall downtrend. The 1.4950 minor psychological level is located at the middle of the range while the 1.5000 handle is at the top of the range, both of which could act as solid resistance levels for the week.

Only medium-tier reports are due from the U.K. today and these could push GBP/USD to pull back a little before resuming its drop in case the actual figures come in better than expected. U.K. manufacturing production is expected to stay flat in January after rising by 1.6% in December while U.K. trade balance is estimated to show a smaller deficit of 8.8 billion GBP from 8.9 billion GBP.

Shorting around 1.4950 with a stop above 1.5000 would yield more than a 2:1 reward to risk ratio if you’d aim for the previous lows around 1.4850.

By Kate Curtis from Trader’s Way