Trade Closed: 2011-08-18 02:35
I got what I expected from UK data yesterday, unfortunately it wasn’t the market driver I had hoped it would be as traders turned strong US Dollar bearish throughout the European and US trading sessions. Not so good for short Cable trade.
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
UK unemployment claims rose at the fastest pace since 2009 and for the first time since May 2010, the Bank of England’s monetary policy committee unanimously voted to hold rates. This caused an instant reaction to sell off Cable, but it was short lived as broad US Dollar selling took hold as traders refocused of US economic weakness and uncertainty. In the US session, we also got hints of US President Obama’s short-term plans boost the economy and reduce the deficit, in which traders took as further reason to sell the Greenback and buy in high-yielders and equities. At least one things is still certain, stimulus and austerity is still negative for a currency.
Needless to say, Cable broke above the strong resistance level, and on the pull back and retest, buyers jumped in and took the pair higher to just under 1.6600 before topping out. My trade was triggered at 1.6475 and stopped out at 1.6545.
Total: -70 pips/ -1.0% loss
Looking back, I thought this would at least be a “no trade” after that surprisingly weak UK data. It looked like a breakout lower but US Dollar sellers were just waiting for a better price before rushing in. And in retrospect, as I watched the pair break and retest the broken resistance level, I had a feeling it would hold as support because I’ve seen it so many times before. Buyers did jump back in on the retracement and took the pair higher. I feel that my only mistake was not closing at that point.
Well, there’s two more sessions in the week left and with the wild volatility that continues to drive the markets, I may still have a chance to end the week with a win. Stay tuned for new trade ideas, good luck and good trading!
Trade Idea: 2011-08-17 00:10
What’s up fellow forex fanatics? Now that it seems like the market madness has died down a bit, I think it might be safe to jump back in the water. For this week, I like how Cable is retesting a very strong resistance area and holding–time for a reversal?
On the one hour chart above, I marked the strong resistance area that has held off Cable bulls for the past three weeks. 1.6478 was tested and held once again yesterday, so I’m thinking there’s a good chance the bears may start to grab a hold of the pair. Technically, we can see a bearish divergence. While not a perfect setup, those stochastic highs are lower than last week while the pair makes higher highs.
Fundamentally, everyday is still a crap shoot on what’s driving the currency markets, with the most recent being the lack of commitment from French President Sarkozy and German Chancellor Merkel to expand the euro rescue fund and to create joint euro bonds. Not only did they disappoint markets with those decisions, but a plan to revisit a previously rejected “financial-transaction tax” also sent the markets lower in the afternoon trading session.
So, it’s “risk off” at the moment, but of course, today is a new day with new challenges. Today, the focus may shift to the UK as we get jobs numbers and the most recent BOE meeting minutes. Both events tend to bring volatility, which is why I’m looking at playing Cable this week.
The UK claimant count change has been steadily rising (i.e., more and more are filing for unemployment benefits each month). Expectations are for 20k.1 in July, but I expect the trend of weaker than expected numbers to continue. Also, the BOE meeting minutes aren’t expected to show anything new besides their outlook that the recovery will be long and hard. Overall, I think today’s data may lean traders back into the bearish bias IF all comes out as expected.
So, for today I look to buy some Greenbacks against the British Pound on a retest of that strong resistance area. My stop will be a tight 70 pips and my ultimate target will be the bottom of this week’s range–a nice 4:1 potential return-on-risk!
Short GBP/USD at 1.6475, stop at 1.6545, pt at 1.6150
Remember to never risk more than 1% of an account on any single trade. Please adjust position sizes accordingly.
Now, this is an action packed week on the forex calendar, so I will I may cut out early or add to my trade depending on how it all plays out. Stay tuned by following me on Twitter and Facebook for adjustments and updates. Good luck and good trading!