Trade Idea: 2012-5-31 03:20

Isn't that a beauty? Cable, after testing major support at 1.5650 for four straight days, finally broke through. The break was extremely convincing for me since the yesterday's candle closed very near its low. Additionally, this setup has also been pointed out by Big Pippin on his daily chart art, giving me even more confidence to go take it.

But it's not just that. On the fundamental side of things, concerns about the euro zone still continue to dominate market sentiment and weigh down higher-yielding currencies like the pound. Call me a pessimist, but with Greece teetering at the brink of default and Spainish bond yields rising to unsustainable levels, I don't think that investors will easily get out of the safety of the U.S. dollar.

I will be on my toes for the outcome of the top-tier reports we have from the U.S. Honestly, I have no idea what their effect on the dollar will be. If they come in better than expected, the currency could get sold off as risk appetite may kick in or it could also rally because it would give investors a fundamental reason to seek the dollar even more.

Meanwhile, there are also two scenarios if the figures disappoint expectations. The dollar could lose against its counterparts as investors could shift their focus and worry about the U.S. economy. However, they could also fuel risk aversion and highlight the dollar's safe haven appeal even more.

And so, I will wait and gauge how the market reacts to the U.S. GDP and NFP reports before deciding if I should hold on to my trade over the weekend or not.

Anyway, since I think the pair still has a lot of downside potential, I decided to sell at market. I'm ultimately aiming for new lows, but I'll be taking some profit off the table if the former low at 1.5275 gets tested.

For my stop, I'm going to base it off the 20-period Average True Range (ATR). Basically, I'm going to use a volatility stop. Since the 20-period ATR of the pair is 86 pips, I think a stop loss of 100 pips is enough to give my trade enough room to breathe.

Trade idea:

Sell GBP/USD at market (1.5473), SL at 1.5573, PT at 1.5275, 1% risk. Risk Disclosure.

There ya go, folks! What do you think of my trade?

XOXO,

Huck

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