GBP/USD: Retracement Setup (January 6, 2014)

GBP/USD has broken past the 1.6500 handle last December but failed to sustain its rallies until the start of this year. This suggests that a huge retracement might be in the cards, as the pair gathers more buying power.

The 50% Fibonacci retracement level lines up with an area of interest. As you can see from the chart, the level is also close to the 1.6200 major psychological support level.

Going long at 1.6225 with a stop below 1.6200 or the 61.8% Fib level could provide the pair enough leeway for a pullback. Stochastic is already in the oversold region, which means that sellers are already exhausted. Aiming for the 1.6500 mark seems to be a reasonable target and could yield roughly a 3:1 return on risk.

By Kate Curtis from Trader’s Way