Trade review and tips for trading the British pound
The test of 1.3363 occurred when the MACD indicator had moved far below the zero line, limiting the pair's downward potential. A second test of 1.3363 triggered Scenario No. 2, prompting a buy of the pound and a 30-pip rise.
Sterling's weakness yesterday was part of a broader picture of the dollar strengthening against most currencies. U.S. data were unlikely the only reason, but they should not be dismissed. Initial jobless claims totaled 194,000 versus a 200,000 forecast and 200,000 a week earlier; the leading indicators index for September came in at 0.0% versus an expected -0.1%; and continuing claims were 1,728,000 versus a 1,720,000 forecast. The Middle East added to concerns. But the pound had its own reasons to fall. The CBI industrial-orders balance for October was -32 versus a -20 forecast and -9 a month earlier. Overnight GfK showed consumer confidence in October plunged to -24 versus a -14 forecast and -13 in September, meaning household confidence fell sharply.
Today's calendar gives the pound a chance to recover if the figures are decent. The main morning release is September retail sales, including fuel costs. Analysts expect a 0.1% decline after a 0.5% rise a month earlier, and the year-on-year figure is forecast to fall to 1.0% from 2.4%. If reality is better than expected, that would strongly suggest consumers are holding up even amid high inflation. PMI readings for October follow the retail data. The manufacturing index is expected at 51.8, down from 51.9; services at 51.8, down from 52.1; and the composite was previously 52.0. By comparison, in August services and the composite were 52.5, so the picture is gradually slipping. Readings above 50 indicate expansion, and all three indicators remain above that threshold for now. So the market does not expect a catastrophe, but surprises could move prices. I believe that good figures could help GBP/USD reclaim some ground, while weak data will keep the pound under dollar pressure, and traders will have to wait for new reasons to buy.
For the intraday strategy, I will rely more on Scenarios No. 1 and No. 2.
Scenarios for Buying
Scenario No. 1: I plan to buy the pound today when it reaches an entry point around 1.3395 (the green line on the chart), targeting 1.3416 (the thicker green line on the chart). Around 1.3416, I intend to exit long positions and open short positions in the opposite direction (expecting a 30–35-pip move away from the level). One can count on the pound rising today only after strong economic data. Important! Before buying, make sure the MACD indicator is above the zero line and is just beginning to rise from it.
Scenario No. 2: I also plan to buy the pound today if it tests 1.3383 twice in a row while the MACD indicator is in the oversold area. This will limit the pair's downside potential and lead to an upward reversal. One can expect a rise to the opposite levels of 1.3395 and 1.3416.
Scenarios for Selling
Scenario No. 1: I plan to sell the pound today after 1.3383 is breached (red line on the chart), which will lead to a rapid decline of the pair. The sellers' key target is 1.3359, where I intend to exit shorts and immediately open longs in the opposite direction (expecting a 20–25-pip move away from the level). Bad news will return pressure on the pound. Important! Before selling, make sure the MACD indicator is below the zero line and is just beginning to decline from it.
Scenario No. 2: I also plan to sell the pound today in the event of two consecutive tests of 1.3395 when the MACD indicator is in the overbought area. This will limit the pair's upside potential and lead to a downward reversal. One can expect a decline to the opposite levels of 1.3383 and 1.3359.
What's on the chart:
Thin green line — entry price where you can buy the instrument.
Thick green line — approximate price where you can place Take Profit or manually lock in profits, because further upside above this level is unlikely.
Thin red line — entry price where you can sell the instrument.
Thick red line — approximate price where you can place Take Profit or manually lock in profits, because further downside below this level is unlikely.
MACD indicator. When entering the market, it's important to consider overbought and oversold zones.
Important. Novice Forex traders must be very cautious when deciding to enter the market. It is best to stay out before major fundamental reports to avoid getting caught in sharp price swings. If you decide to trade during news releases, always place stop orders to minimize losses. Without stop orders, you can quickly lose your entire deposit, especially if you don't use money management and trade large volumes.
Remember: successful trading requires a clear trading plan, like the example above. Spontaneous trade decisions based solely on the immediate market situation are, by definition, a losing strategy for an intraday trader.
