Trade Closed: 2013-06-03 12:30 ET
Not a great start to June as my longer-term swing short on GBP/USD was stopped out, thanks to a divergence between the UK and the US’s Manufacturing PMI data.
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
Because I setup on the higher four hour time frame, I left my entry order open over the weekend as I felt the setup was still valid. This morning, we saw positive manufacturing PMI data from across Europe and the UK, and I thought this was a good thing to get the market to go higher to hit my entry orders at 1.5245 and 1.5300. And possibly, the trend of positive manufacturing PMI data will continue in the US numbers.
Actually, the market didn’t get a huge boost until the US ISM Manufacturing PMI came out at 10:00 am ET, weaker-than-expected at 49.0 vs. 50.6 forecast, sparking a very large US Dollar sell off. This divergence in data–but more importantly, the contractionary number supports a “Fed taper” later rather than sooner–lead to a break of the potential resistance area up to 1.5300. My two entry orders were triggered along the way, eventually leading to being stopped out at 1.5375.
Total: -102.5/ -1.00% loss
My effort to create a longer-term swing didn’t pan out thanks to negative US data, and a big reaction to it. With data the UK looking a bit more positive, this may be a short-term pivot point for the Greenback as traders may start to take off their US Dollar longs if UK and euro zone data continues to surprise to the upside.
What I could have done differently was to take the trade/orders off as soon as the US ISM data came out, but this was supposed to be a longer-term swing so I left it on to see how the market would respond. It looks like there was lot of traders out there ready to hit the sell button.
Overall, the technical setup and initial bias was good, but as with most of my trades this year, it all comes down to adjusting better as the story quickly evolves. Right now, it’s all about what the central banks (mainly the Fed) will do with quantitative easing programs, which makes this environment more of a data driven one rather than an event driven one that we’ve seen in the recent past.
It’s gonna be tough to gauge how the markets will behave this week with so many major events and data releases coming up on the calendar, so I’ll stick to shorter-term trades for now. Thanks for checking out my blog, good luck and good trading!
Trade Idea: 2013-05-27 9:13 ET
Good morning forex friends! With the economic calendar looking a wee bit thin this week, I thought I’d play the technicals with a setup possibly forming on Cable. Can I catch the current Dollar trend at a better price?
Over the past three weeks, we saw a strong, broad USD rally on the idea the Fed may scale back on the quantitative easing measures sometime this year. As with any strong momentum move, we may get a pullback as traders take a breather and lock in some profits. If we do get a pull back higher to the 1.5250 – 1.5300 area, which is also the 38% – 50% Fibonacci retracement area, that might be a great time for Cable bears to jump on an opportunity to play the trend at a better price. I’ll look to scale into this area at those levels, with my stop just above the 61% Fibonacci retracement level around 1.5370. My profit target will be last week’s lows just above the 1.5000 major psychological level. Here’s what I am going to do.
Sell half position GBP/USD at 1.5245, stop at 1.5375, profit target at 1.5030
Sell half position GBP/SUD at 1.5300, stop at 1.5375, profit target at 1.5030
With this trade structure, and if both positions are triggered, my potential return-on-risk is about 2.38:1. if I don’t get the retracement I’m looking for, I’ll look to jump in short at market, but with reduced risk.
Not only do I like this trade on the idea of the Fed scaling back bond buying operations, but recent lower-than-expected inflation and weaker retail sales supports a weaker Sterling argument. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!