Trade Closed: 2007-05-10 23:15

Trade closed as Sterling sold off ahead if the Bank of England Interest Rate decision during the Euro trading session. It appears to have been a sell off on weaker than expected industrial data along with a "buy the rumor, sell the news" situation as traders built up long Cable positions and then sold off their positions to reduce event risk.

So, the pair dropped as expected, but we didn't find strong enough resistance at 1.9900. Our half position stopped out at -35 pips.

Trade Idea: 2007-05-09 23:46

Well Cable traders, this is the event we've been waiting for all week...the UK Interest Rate decision! It is a widely held opinion in the market that the Bank of England will definitely raise rates, but by how much? Hard to tell, but with the BOE surprising us in the past I wouldn't count out at 50 basis point hike.

Whether it is 25 basis points or 50 basis points, as long as there is a hike I think we will definitely see buying in this pair as the interest rate differential goes in favor of long positions in GBP/USD.

So, I am long bias on this pair, but we may see GBP/USD drop during the Asia/European trading sessions as traders get a chance to factor in the Fed decision to hold rates steady against "somewhat elevated" inflation risks.

If the pair does drop, this gives us an opportunity to jump in long at a better price. Although, with all of the event risk coming out tomorrow (Trade Balance reports from both UK and US, Manufacturing and Industrial reports out of UK), we will limit our trade to half our normal position size.

Long half position GBP/USD at 1.9900, stop at 1.9865, pt at 1.9950

Stay tuned as we may have to make adjustments, depending on the data released later today.

Good luck and good trading!

BTW - Be sure to check out our new lessons that will give you an introduction to Commodity Currencies, Currency Crosses, and Trading Divergences.... Enjoy!