Trade Idea: 2010-04-20 22:45

It looks like a lot of traders picked up the pound when the UK's annualized inflation jumped by 3.4% in March which was more than the 3.2% expected. The UK's retail price index (RPI), which measures the change in the prices of goods and services that were consumed by end users, also showed a 4.4% during the period.

The country's inflation had gone over the Bank of England's maximum inflation target of 3% for the second time this year. Relatively cheaper imports due to a weak pound plus the jump in energy costs were said to have been the cause of the hike in general prices.

Total: -162 pips / -1.00% loss

In any case, this was taken by traders as indicative of future rate hikes, which stopped me out.

Trade Idea: 2010-04-19 22:50

A short right at the 142.00 handle looks ideal because for a couple of reasons. One, it is a psychologically significant number. Two, that price level has held as support before... And we all know whenever price passes through a support level, that level turns into resistance. Three, price just bounced from the 50% Fibonacci retracement level. Four, a bearish divergence has formed, which is an early sign of a possible drop. And lastly, stochastics show that conditions are already overbought, confirming my bearish bias on the pair.

Since this will only be a day trade, my stop little bit tighter. I've set my stop above the 61.8% Fibonacci retracement level, roughly equivalent to the pair's daily average true range. On the other hand, I've set my profit target above the previous day's low, right at the 140.00 handle.

On the fundamental front, investors still seem to be wary about pursuing higher-yielding assets now that the ongoing concerns about the Greek bailout and the Goldman Sachs fraud issue kept risk appetite at bay. This flight to safety is causing an unwinding of carry trades, boosting the low-yielding Japanese yen in the process.

Later on, UK will release a few inflation reports, which could show that price levels rose in March. Their CPI report could print an annualized 3.2% increase while their retail price index could show a 4.1% rise. But if the actual results come in weaker than expected, they could also fail to meet the central bank targets and cause the pound to resume its fall.

Again, here's what I did:

Shorted GBPJPY at market (141.88), target at 140.00, stop at 143.50. As usual, risk management is important so I will only put 1% of my account on the line.

By the way, did any of you see today's NBA playoff game? Well, King James just sunk 40 points to give the Cavs a 2-0 lead over the Bulls. Now, it's Kobe's turn to do his thang...

Oh, and don't forget to hit me up at MeetPips.com!