Break and Retest for GBP/USD? – No Trade

No Trade: 2012-11-14 17:21 ET

Good afternoon traders! Thanks to high-than-expected UK CPI data, and maybe some profit taking, Cable did pull back to the 1.5900 area where sellers jumped right back in. Unfortunately, the retest wasn’t long enough to trigger my orders. Doh!

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

pcpod.20121112.review.png

On Tuesday, Cable found a bit of support after the UK printed higher-than-expected CPI data (2.7% vs 2.3% forecasted y/y), adding fuel to the flame that further quantitative easing is not needed. That didn’t last too long as Europe released abysmal economic sentiment data (most notable was German ZEW -15.7 vs. -10.0 forecast) to bring broad market sentiment even lower. So, Cable’s visit to 1.5900, and my first order entry level of 1.5915, was quickly re-routed back in favor of the Greenback. And unfortunately, that re-test was so quick that my orders at 1.5915 did not trigger.

The pair was helped lower in today’s session with weaker UK Jobs data (Claimant Count Change +10.1K vs. -0.5K forecast), and with the pair currently testing 1.5840, it’s pretty clear I missed the boat on this one. I’ve decided to look for new opportunities and close my orders to short GBP/USD at 1.5915 and 1.5985. No trade.

In retrospect, I was pretty spot on with my analysis of market behavior, but I may have under estimated that sell orders would overwhelm buy orders so quickly in that area. I think I’ll adjust by returning to scaling in starting at market, unless the outlook compels me to do otherwise. Besides that, it was a pretty textbook setup–it just didn’t roll my way this time.

We still have plenty of second tier events to close out the week, so I may hop into a day trade if the opportunity arises. If I do, be sure to checkout my thoughts and observations by following me on Twitter and Facebook to see if it’s something you can incorporate into your own trading methods.

Thanks for checking out my blog. Good luck and good trading!

Trade Idea: 2012-11-12 17:02 ET

Good afternoon traders! It’s a new week and a new chance to grab some pips. For this week, I’m watching Cable on a recent technical break and the current risk-off sentiment. Will the trend lower continue?

pcpod.20121112.png

I’ve got the 60 minute chart above of Cable, and we can see clear selling pressure sparked by a number of events: the outcome of the US Presidential election, more austerity in Greece, and a weakening global outlook just to name a few.

This week, we have a few events that may add to risk-off flow and possibly a weaker British Pound. On the forex calendar, there’s plenty of top tier events from both the US and UK (UK jobs and retail sales, BOE inflation letter, FOMC meeting minutes, etc.). It looks like UK jobs and retails sales are forecasted to come in weaker, not surprising considering recent global economic data, and it looks like inflation is being kept in check with the BOE unwilling to make moves. US data looks like it’ll come inline with expectations, and besides, the fiscal cliff will be the short-term focus which has been USD positive lately. I’m thinking that buying support will be lacking for the GBP/USD if this all holds true, so I’m looking to sell Cable in the short term.

Technically, it’s been a rough ride for Sterling, especially as we saw a strong breakout lower after the rectangle formation. Now with such a strong move, there does tend to be a pull back on profit taking from short-term traders; if we see the same behavior I’ll look to scale in short around the rectangle area. My stop will be above last week’s high (1.6043), and my profit target will be the next major psychological support level. Here’s what I am going to do:

Short half position GBP/USD at 1.5915, stop at 1.6065, max profit target at 1.5805

Short half position GBP/USD at 1.5985, stop at 1.6065, max profit target at 1.5805

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

If both positions are entered, this trade structure gives me a 1.80:1 potential return-on-risk. Of course, anything can happen in this crazy times, so if the data comes out differently than expected, or we get an unforeseeable event, I’ll be sure to adjust quickly. Stay tuned by following me on Twitter and Facebook for updates and adjustments.

Thanks for checking out my blog–good luck and good trading!

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