Pick of the Day: GBP/USD – Trade Closed

Trade Closed: 2009-05-15 07:23

Good morning! I was able to catch some pips yesterday for a small gain as Cable rallied higher to hit my entry orders at 1.5180. Luckily, the pair dropped far enough to hit my first profit target, where I was able to close half of my position to lock in profits and the stop on my remaining position to break even. Unluckily, GBPUSD gained some legs during the morning US trading session on a rise in risk tolerance and hit my adjusted stop loss and closed my trade.

1st Half: +100 pips
2nd Half: +00 pips
Total: +0.50% gain

So, a nice little gain for what has been a pretty range bound week in the markets. Lots of opportunity to play support and resistance, and a lot of areas of interest to watch. I hope everyone caught some pips. That’s it for me for the week. Have a great weekend everyone and see ya next week!

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Trade Idea:2009-05-13 10:25

PoD Chart

Good morning! I’ve got my sights on a simple technical setup on “Cable.” Today’s economic events have brought in sellers to GBP/USD…will the push lower continue?

On the four hour chart, there are a couple of technical signals that has got me bearish on the pair. First, there is a trendline break lower. Second, there has been regular bearish divergence as the price has kept making higher “highs” while stochastics were making lower “highs”.

Fundamentally, the Bank of England stated in today’s inflation report that the economy will be in the process of a “slow” recovery and that inflation is expected to stay below target for the next 3 years. This has sparked further quantitative easing speculation for the BOE. Coupled with today’s US retail sales data, which reported a drop of 0.4% in April, and March was revised downward to -1.3%, we saw sellers push GBP/USD down from 1.53 to 1.51.

I think that this brought the markets back to the reality that things are pretty bad and will continue to get worse. The sentiment that the decline isn’t as fast as during the deleveraging phase may not bring any more risk takers into the market. I think we will continue to see revisions in previous numbers, showing the true state of the economy and possibly a return to risk aversion.

So, I am bearish on GBP/USD in the short term and look to short on a pullback from today’s drop. Here’s what I will do:

Short GBP/USD at 1.5180, stop at 1.5280, pt1 at 1.5080, pt2 at 1.4980

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

Lot’s of data this week, so it be a bumpy ride! Stay safe and stay tuned!

  • cadarkitek

    I just entered short as well, I’m now seeing a break and test of the inner trendline on my chart and also a nice tweezer top on the 1H.

  • leo_usb

    Greetings,

    Pipcrawler, on the fundamental side, would you be so kind to elaborate a bit into why you say: “This has sparked further quantitative easing speculation for the BOE” (BTW, I have read the quantitative easing explanation in Forexpedia)?
    Also, if BOE reports inflation below target (good for cable), and slow recovery (good for cable), as well as, positive US retail sales data (good for buck)how it all translates into a Bearish cable?

    Thx

  • pipsprof.

    Hello pipcrawler,This is a good call,i got short 1.5150 though,technically it is perfect and fundermentally ok. Lets see what happens,hope ur trade has triggered off?I was busy analysing some other trades when i got ur email alert and quickly checked out the settings.So I owe you this trade if we win.Thanks in advance.

  • Pipcrawler

    Thanks for the comments guys! leousb – low inflation or deflation is generally bearish for a currency because it means that central banks won’t have to raise interest rates, or actually cut interest rates. A lower interest rate makes an asset like currencies less attractive to investors. Also, a slow recovery in this case means that we probably won’t see growth in the UK until later next year or beyond. This is contradictory to estimates a few weeks ago that we’d see recovery within 2009. The negative retail sales data is positive for the buck against the Pound because it affects risk sentiment on the overall economy. Yes, it is dollar negative news, but the bigger picture is that the US and global economy are not out of the woods yet. This prompts investors to take money out of “riskier plays” like being long GBP and put money back into “safe haven” plays like US bonds and the US Dollar.

  • cadarkitek

    I just entered short as well, I’m now seeing a break and test of the inner trendline on my chart and also a nice tweezer top on the 1H.

  • leo_usb

    Greetings,

    Pipcrawler, on the fundamental side, would you be so kind to elaborate a bit into why you say: “This has sparked further quantitative easing speculation for the BOE” (BTW, I have read the quantitative easing explanation in Forexpedia)?
    Also, if BOE reports inflation below target (good for cable), and slow recovery (good for cable), as well as, positive US retail sales data (good for buck)how it all translates into a Bearish cable?

    Thx

  • pipsprof.

    Hello pipcrawler,This is a good call,i got short 1.5150 though,technically it is perfect and fundermentally ok. Lets see what happens,hope ur trade has triggered off?I was busy analysing some other trades when i got ur email alert and quickly checked out the settings.So I owe you this trade if we win.Thanks in advance.

  • Pipcrawler

    Thanks for the comments guys! leousb – low inflation or deflation is generally bearish for a currency because it means that central banks won’t have to raise interest rates, or actually cut interest rates. A lower interest rate makes an asset like currencies less attractive to investors. Also, a slow recovery in this case means that we probably won’t see growth in the UK until later next year or beyond. This is contradictory to estimates a few weeks ago that we’d see recovery within 2009. The negative retail sales data is positive for the buck against the Pound because it affects risk sentiment on the overall economy. Yes, it is dollar negative news, but the bigger picture is that the US and global economy are not out of the woods yet. This prompts investors to take money out of “riskier plays” like being long GBP and put money back into “safe haven” plays like US bonds and the US Dollar.

  • davyy

    Pipcrawler can we get these alerts on e-mail? or do we have to check the site every now and then?
    Thank you

  • davyy

    Pipcrawler can we get these alerts on e-mail? or do we have to check the site every now and then?
    Thank you

  • Pipcrawler

    Hey davyy….You can subscribe to my feeds in the upper right hand corner of my blog post. Thanks!

  • leo_usb

    Pipcrawler,

    Excellent feed you have here, and thanks por the answer of my previous question.
    I dare suggest to include the corresponding graph for the “trade closed” section in future threads, so anyone can easily see what has happened thus making it more compelling.

  • Pipcrawler

    Hey davyy….You can subscribe to my feeds in the upper right hand corner of my blog post. Thanks!

  • leo_usb

    Pipcrawler,

    Excellent feed you have here, and thanks por the answer of my previous question.
    I dare suggest to include the corresponding graph for the “trade closed” section in future threads, so anyone can easily see what has happened thus making it more compelling.