Trade Setup for the Day: GBP/USD Short (February 22, 2013)

There might be a chance to catch the GBP/USD selloff at a better price today as the pair appears to be retracing to the 38.2% Fibonacci level on the 4-hour time frame. On a longer-term chart, the pair has already broken down from a significant level of support at 1.5350 and appears to be headed further south.

Stochastic is deep in the overbought region in the 4-hour chart, which suggests that the pullback could be over soon. In addition, the 38.2% Fibonacci level is in line with the 1.5250 minor psychological mark, which could act as resistance.

Setting a stop above the 61.8% Fibonacci retracement level seems like a reasonable line in the sand as it is close to the former support at 1.5350. For those already short the pair, scaling in at the 1.5250 area could allow you to press your advantage. Aiming for the next major support level at 1.5000 or lower would yield an excellent reward-to-risk ratio.

By Kate Curtis