Trade Setup for the Day: Short GBP/USD (February 18, 2013)

GBP/USD is consolidating around the 1.5500 handle at the moment but another breakdown and selloff could be in the works.

A possible retracement play could also unfold if the pair pulls back to the 1.5650 mark, which is in line with a former support level and the falling trend line on the 4-hour time frame. Placing your stop above 1.5700 would yield a pretty decent reward to risk ratio.

A breakout play could materialize if GBP/USD trades below the 1.5475 level and it could go all the way down to the 1.5300 area. A stop above the 1.5500 line in the sand would translate to an excellent reward to risk potential. Be mindful of stochastic crossing above the oversold area though as this could indicate whether the pair will be retracing or simply breaking down this week.

Take note that the U.K. is set to print its claimant count change report and show another decrease in jobless claimants for January. Also, the BOE will be printing its latest monetary policy meeting minutes midweek and reveal how many policymakers are favoring further easing and how many would rather stay put. A division tilted in favor of further easing could trigger a stronger pound selloff later on.

By Kate Curtis