Shorting GBP/CHF at Falling Trend Line – Trade Closed

Trade Closed: 2013-05-10 01:40

GBP/CHF Chart

Well, that was quick! I thought I would be in this trade for a few more days, but apparently, the markets had something else in mind.

With the U.K. manufacturing report printing positive results and the BOE deciding to stand down and keep its monetary policy as is, the pound received a bit of a boost. I wasn’t really worried though, because my stop loss was still a good distance away.

However, things turned from bad to worse in the New York session, as the U.S. initial jobless claims report triggered a sort of risk rally. It was unusual because while the higher-yielding currencies gained ground against safe havens such as the yen and Swissy, the dollar ended up at the top of the food chain.

In any case, this resulted in an extended move up in GBP/CHF, causing price to hit my stop.

Stopped out at 1.4676: -149 pips / -0.50%.

I’ll admit, I was sort of blindsided by the strength of the market’s reaction to the U.S. jobs report. That just goes to show that you really have to consider all factors and all possible scenarios when trading the crosses.

This ain’t exactly the way I wanted this week to end, but I know I’ll bounce back soon. I hope you guys had better luck. Thanks for following, folks! I’ll see y’all on the other side of the weekend!

Trade Idea: 2013-05-08 03:50

This ain’t one of the pairs that I normally trade, but this bad boy was just too good to pass up!

GBP/CHF Daily Chart

Technically, we’ve got a lot of signals to go short.

First, there’s a long term falling trend line on this pair, and GBP/CHF is currently finding testing that line. Second, a double top looks to be forming, with the second top forming a nice shooting star-like candlestick. Third, the double top happens to coincide with the 61.8% Fibonacci retracement level, which also lines up nicely with the 1.4600 major psychological handle. Lastly, Stochastic is in overbought territory, indicating that we may see sellers jump in soon.

Fundamentally, the trade makes a lot of sense as well.

The pound has been on a nice rally the past few weeks, but looking at other pairs, it’s starting to seem as though the bulls are running out of steam. Just take a look at GBP/USD, which has bounced off the top of the rising channel.

The one event risk that’s got me on my toes though is the BOE interest rate decision headed our way tomorrow. On one hand, the U.K. was able to avoid a triple dip recession. On the other hand though, central banks around the world are starting to step up their monetary policy game, with the BOJ, ECB, and RBA all introducing additional quantitative easing measures over the past month.

Could the BOE be next? Keep in mind that central banks normally align their respective monetary policies with those of other central banks, so I wouldn’t be surprised at all if BOE joins the club. If they do sound somewhat dovish in BOE Governor Mervyn King’s last BOE statement, it could send the pound much lower and help out my trade!

In any case, here’s my plan:

Short at market at 1.4527, stop loss at 1.4670, profit target at 1.4200.

I’ve put my stop just above the recent highs, because I believe if price makes another run up to that level, my trade will most likely be blown to bits anyway. As for my take profit point, I notice that there have been slightly higher lows, so I don’t want to be too ambitious and will be aiming for the 1.4200 handle.

Overall, this gives me a great return on risk of just over 2:1. That means if all goes according to plan I’ll be taking home just over 1%, as I’ll be risking my usual 0.50% of my account on this trade.

Pretty sweet setup, eh? Who’s joining me?!

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  • Mac

    Everything you said makes sense except for the fact that CHF is tied to EUR, which means Technical Analysis does not apply so much to CHF …. since EUR is so much larger than CHF.

    • Amit Desai

      Good point Mac. I never trade CHF precisely because of this confusing floor. In order to analyze CHF, we need to also look at EUR and then it becomes a 3-way mess.

      Anyway, Cross-eyed better luck next time