Swing Short on the Cable Range – Trade Closed

Trade Closed: 2013-03-07 5:15 ET

Good morning! It looks like the markets moved my way this week as Cable sellers jumped in at the top of the range and pushed the pair back to previous swing lows, hitting my profit target.

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

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Cable bounced higher not too long after I posted my trade idea, which was capped off by a positive surprise from the UK Services PMI data (51.8 vs. 51.1 forecast). This took GBP/USD up to about 1.5200, where sellers were quick to jump in and push the pair back lower.

Over the next couple of days, positive US data and speculation of more easing from the Bank of England pushed the pair past 1.5100 and ultimately, to my profit target area around 1.5000. My limit order at 1.5005 was triggered and closed me out of the trade.

Total: +140 pips/ +0.60% gain

In retrospect, it was a text book trade, but I could have added to my position to increase my profit potential. I considered scaling in after the pair broke 1.5100, but with the MPC monetary policy decision coming soon, I decided to play it safe. I’ve been burned before around this event, so I think it was the right decision.

That’s pretty much it for me this week. With the MPC and ECB events coming up in a couple of hours, and US Non-Farm Payrolls tomorrow, there’s too much event risk to setup a swing trade at the moment. I’ll just sit back and watch to see how these events may shift market sentiment, and maybe even take a day trade or two.

Until next time, stay tuned to my market observations and thoughts by following me on Twitter and Facebook. Good luck and good trading!

Trade Idea: 2013-03-04 7:54 ET

Good morning forex friends! For this week, I’m taking another look at GBP/USD. The pair still feels fundamentally and technically bearish in my book, and with an action packed calendar this week, we could see some nice movement to the downside.

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On the fundamental side of the argument, UK economic data and Bank of England rhetoric hasn’t been positive to say the least. Most recently, we saw the UK’s Construction PMI data come out today weaker-than-expected at 46.8 vs. the 49 forecast. This is just the latest in a string of bad news out of the UK, which has been appropriately priced into GBP/USD over the past few weeks.

To add to the bearish argument on Cable, we’ve seen PMI from around the globe weaker than expected, signaling a global slow down; which may also be accelerated down the road by US spending cuts.

Finally, thanks to Italian elections, the markets are re-focused on Europe and the potential for the Euro debt crisis to flare up and have systemic affects on the global financial system.

All of this uncertainty and event risk has traders fleeing back into the Greenback, which I think may continue this week.

Technically, this pair has come down a long way (+1100 pips since the beginning of January), and finally finding support at the major psychological level 1.5000. I feel like the pair will range this week ahead of the Bank of England Monetary Policy decision and US Non-Farm Payrolls, and I’d like to play this range if it forms. If it does pull back higher, I think any retracement will be viewed as an opportunity for Sterling bears to jump in short. I’m in that camp looking for a short-term trade, so here’s how I’m going to trade Cable this week:

Short GBP/USD at 1.5145, stop at 1.5260, max profit target at 1.5005

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

For this trade, I’ll only be risking 0.50% of my account, and with this trade structure I’m looking for a potential 1.27:1 return-on-risk. If I do have this trade on into Thursday, I’ll adjust by pulling some off the table, and/or adjusting my stop depending on where the market is at that time. And of course, if the story changes before then, I’ll assess and adjust my plan quickly at that time. For my observations and updates, stay tuned by following me on Twitter and Facebook.

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

  • Less_Than_Zero

    Could have all of these Factors, bank of england, positive jobs report from the US led to the drop in Cable early this morning?