Another Short Cable Opportunity?? – Closed Trade

Closed Trade: 2010-10-29 1:00 pm ET

PoD Chart

My idea that the Greenback sell off has run out of steam worked out pretty well against the majors–except Cable. While the rest of the majors are trading lower on the week against the Dollar, Cable is grinding higher on better-than-expected UK data.

Better-than-expected UK GDP kicked off the rally, followed by better-than-expected UK CBI Distributive Trades and Mortgage Approvals data. Cable was also given a boost by positive US data contributing to further risk taking. Sentiment also shifted back to US Dollar weakness Thursday on next week’s QE statement from the Fed.

Both of my half position orders were triggered at 1.5850 and 1.5950, but no reversal on the data and after today’s inline advanced US GDP data, Cable broke above the rising trendline and major psych area of 1.6000. With the weekend quickly approaching, I decided to close out my trade manually at 1.6024.

1st Half: -174 pips
2nd Half: -74 pips
Total: -0.82% loss

There were definitely a couple things I could have done differently with this trade. First, after my first half position was triggered the pair did drop 100 pips my way and tested a minor support level around 1.5760–not only once but twice! Definitely could have taken profits there and re-entered when the pair traded higher.

Secondly, before the US GDP report, my second half position was triggered at 1.5950 and eventually traded below 1.5900 to create a small profit on the overall position. I could have taken profits there before the big report, but I didn’t thinking that because Q2 was revised down, we may see a weaker number than the 2.0% expected as stimulus was being withdrawn through out those quarters.

So, I definitely could have made better decisions as the trade developed, but overall it was a good idea on the macro environment and technical setup. The data just pushed the market in a different direction. It happens and as planned, I paid a very small price for it.

That’s it for the week. Next week should be huge for the markets with US elections and the announcement of further QE from the Fed. There could be big moves which means to be diligent on handling risk and if you do happen to catch a move going your way, to take full advantage of it. Good luck and have a great weekend!

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Trade Idea: 2010-10-26 1:50 pm ET

PoD Chart

Today’s Cable rally on the better-than-expected Advanced 3Q UK GDP report was not enough to return the market to rally mode as the pair stalled at a recent support-turned-resistance area. Time to jump back in short??

On the four hour chart above, we see a setup for a potential reversal lower. The rising trendline was broken around 1.5880, where it was soon retested and held Cable bulls before dropping to 1.5650. Today’s positive UK data brought the pair back to that area where it seems to be holding once again. Also, the stochastic indicator is almost above a reading of 80, indicating the recent rally may be short term overbought.

After over three months of rallying from 1.5350, the rally seems tired and unable to break the major psychological level of 1.6000. Also, my friend Big Pippin pointed out a few days ago in his Daily Chart Art that the pair did make a double top on the daily time frame. If the reversal is for real, we could see a move lower to retest the summer lows.

I think it may be as the Fed QE2 trade is already priced in, and with the focus turning to US housing data (we saw weak S&P Case-Shiller Home Price data today) and the foreclosure mess, we may get a short term risk aversion rally into the Greenback. Let’s also remember that the UK has it’s own fiscal issues, and it is in process of taking it’s own measures to bring down debt and control spending. This may hurt the speed of its own recovery. Put it all together and we may see Cable down to 1.55 – 1.56 in the near term.

So, I have decided to short Cable this week, but I’d like to wait to get in at better prices than the current levels around 1.5815. I will scale in to an average price of 1.5900, and my stop will be the average daily range of about 150. Here’s what I am going to do:

Short half position GBP/USD at 1.5850, stop at 1.6050, pt at 1.5500

Short half position GBP/USD at 1.5950, stop at 1.6050, pt at 1.5500

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.

We do have a great mix of economic data on the Forex calendar for the rest of the week (most notable will be the US GDP data on Friday), so I just may get enough volatility to get the market back up to my trade orders. As always, I will probably close out any open orders or trades at the end of the week to avoid weekend risk.

Stay tuned as I will keep a close eye on the data and adjust to the changing market conditions. Thanks for checking out my blog!