The British pound was hated on big time this week, and with two Sterling positions open, it was time to adjust to limit losses and hop on this new shift in forex sentiment.
Original Trade Idea: Forex Trade Idea: EUR/GBP Short
Forex traders were in Sterling sell mode this week and EUR/GBP was no exception as it pretty much raced higher, with a little bit of help from broadly strong bullish sentiment in the euro. This sentiment shift almost took me out at my max stop, but luckily .7400 drew in enough sellers to save my butt.
Now the picture has changed in that it looks like a falling trendline of lower highs was broken, retested and it looks like the bulls might be here to stay for now. With this dip lower in the session, I decided to close my position down to get out of this potential trend shift and limit it to a very small loss.
Total: -84 pips/-0.21% loss
Overall, it was a good setup in my book but this turn in pound sentiment turned quickly, and all I could do was limit my loss as much as possible. For now, I think I’ll stay away from EUR/GBP until we see a clearer trend.
Original Trade Idea: Forex Trade Idea: GBP/NZD Long
My long GBP/NZD trade was triggered this week, but the picture changed for me as there wasn’t much of a bounce from a retest of the 2.4000 handle. Actually, the chart turned into a trendline “break-and-retest” setup against that rising trendline and rising 200 SMA, which are great technical arguments for me to completely reverse my trade idea. I also like it because it seems like the world seems to slowly be reversing from recent extreme “risk-off” sentiment, so it might be time for extremely bearish traders to lighten up on the risk aversion trade. Finally, the pound may continue to see weakness on due to its recent weakness against the rest of the majors, especially against the Greenback, likely on the idea that all the traders that are trying to pre-empt a Bank of England rate hike may already be in the trade.
So, if there is a complete reversal, the 2.3200 target makes for great risk-to-reward potential, a reward that would certainly cover the very small -80 pips (-0.125%) loss I took for closing out my long and opening up short at 2.3920. I also get positive carry going short, which makes this trade easier to hold if it goes longer-term. Let’s see how that goes for now and hopefully my small loss can turn into a big gain…stay tuned and have great weekend!