Will Dovish MPC Minutes Continue to Push Cable Lower? – Trade Closed

Trade Closed: 2012-02-23 12:15 ET

Good afternoon! It looks like the market moved in my favor as Cable rallied and briefly touched my short order level before moving back below the 1.5700.

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

PCDPOD20120222.review.png

For the review, I drilled down to the 15m chart above to see how the market moved today. Cable grinded higher for most of the Asia and European trading session, possibly with the help of positive UK data in the form of BBA Mortgage Approvals (38.1K vs. 36.3K forecast) and CBI Industrial Order Expectations (-3 vs. -14 forecast).

But the real volatility didn’t come until the weekly US initial claims data, which came in slightly better than expected (351K vs. 355K forecast). After a couple bars of whipsaw action, and triggering my trade at 1.5730, traders pushed Cable in favor of the Greenback. But the move wasn’t much, and with the European session closing, I decided to close the trade manually at 1.5697.

Total: +33 pips/ +0.33% gain

Not a big score in today’s session, but I’ll take any kind of profit any day. It was a pretty straight forward trade without any surprise catalysts on the day, so I think I there’s nothing much I could have improved on.

That’s it for today! Thanks for checking out my blog and stay tuned by following me on Twitter and Facebook for new ideas and market observations. Good luck and good trading!

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Trade Idea: 2012-02-22 17:20 ET

Good afternoon forex friends! In Wednesday’s session, we got a dovish surprise from the Bank of England’s Monetary Policy Committee minutes. It sparked a bad day for Cable, and the new question is, will it continue?

PCDPOD20120222.png

As mentioned earlier, this month’s MPC meeting minutes showed that Adam Posen and David Miles voted for 75B pound boost to their quantitative easing program, rather than the 50B pounds voted by the other policy makers. This was a surprise to the markets, clearly shown by a quick drop in the pound’s value against the other majors.

This is clearly a new catalyst for British Pound pairs, one that I think will at least carry out into the end of the week as the rest of this week’s forex calendar looks void of any major potential market moving data. So, I look to short GBP/USD on a simple technical play.

On the 60m chart above, we can see Cable has re-entered an area of previous consolidation between major support around 1.5660 and minor resistance around 1.5730. Also, using the Fib tool, it looks like that minor resistance lines up with the 50% retracement of the strong move lower on today’s news. I’ll look to enter there for a day trade, with my stop 1/2 of the daily ATR and my target around the major support area. Here’s what I am going to do:

Short GBP/USD at 1.5730, stop at 1.5780, pt at 1.5630

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

This trade structure gives me a potential 2:1 return-on-risk, and since this is a day trade, I will only risk 0.50% of my account.

We do have mid-tier events from the UK (BBA Mortgage Approvals and CBI Industrial Order Expectations) that may help the market get to my entry point, so I’ll just have to wait and see how that plays out. As always, if the market environment shifts on a new catalyst, I’ll be sure to adjust my open orders or open position quickly. Be sure to follow me on Twitter and Facebook for updates. Thanks for checking out my blog…good luck and good trading!