GBP/USD: Eyeing Resistance At the Falling Trend Line – Trade Closed

Trade Closed: 2013-4-26 12:37 am EST

It isn’t even summer yet but I already got myself a major burn. My Cable trade got stopped out faster than you can say “sunblock” following the better-than-expected U.K. GDP report.

GBP/USD 1-hour Chart

I did exactly what I outlined in my plan. I shorted the pair at market and got in at 1.5273 when price failed to close above the moving averages. GBP/USD then went higher to test resistance at the falling trend line. I scaled in and shorted my second position at 1.5318.

Resistance at the trend line initially held. But unfortunately for me and everyone else who had a bearish bias on the pound, the U.K. GDP report topped expectations at 0.1% and printed 0.3% growth in Q1 2013. Price skyrocketed quickly and stopped me out of my trade before I could’ve even closed early. Bummer!

Closed both positions at 1.5372: -153 pips / -1.00%

Trade Idea: 2013-4-24 4:11 am EST

As I said in my Pre-Week Market Analysis, I’m looking for a way to short Cable. After a bit of thought, I’m ready to set my limit short orders.

GBP/USD 1-hour Chart

From the chart I posted, you can see that the pair is in a clear downtrend. Price has been making “lower highs” and “lower lows,” forming what looks like a descending channel. Even though this is the case, I’m not going to jump in immediately. Stochastic is showing that the pair is oversold, indicating that it still has room to pullback.

Because of this, I’m going to wait for price to test the 200 SMA before selling. I know catching tops can be hard, so I’m only going to bet half of my normal position size. I will use the other half to sell at the falling trend line resistance.

On the fundamental side of things, I’m looking at a couple of reports on tap this week that could move the pair lower.

The first one is the preliminary Q1 2013 GDP report from the U.K. due tomorrow. It is eyed to show that the economy grew by 0.1% during the quarter, however, I think there’s a chance for it to disappoint expectations. After all, there are signs that the British economy could be headed for a triple-dip recession.

Then on Friday, the U.S. GDP report will be released. Don’t get me wrong. I don’t think that the U.S. is in much better shape than the U.K., especially not after the disappointing NFP for March. If the GDP prints below forecasts, risk aversion could kick in and boost the dollar.

Given this technical setup and the fundamental landscape, my plan is to:

Sell GBP/USD at 1.5280 and 1.5315 with 0.5% risk on each position. Stop at 1.5370. PT to be determined. Risk disclosure.

XOXO,

Huck

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  • Jeff Kiprotich

    Sorry about your loss. 🙁
    But I’m curious, why didn’t you close the position knowing there was Very High Impact News Announcement coming?

  • Bijoymj

    Better than expected GDP gained me +110 pips in a range play as in the chart.