A bit late but I’m in! It turns out Brexit jitters are still weighing on the pound so I’ve hopped in this short GBP/CAD trade on a break lower. Now this entry point is a bit far from my initial plan to short closer to the top of the range, but I did mention that I didn’t mind waiting for more bearish momentum before taking the plunge.
This pair was testing the range resistance right around the time of the BOE interest rate statement so I wasn’t keen on shorting at market just yet. Besides, I wasn’t sure what the U.K. central bank might say, as any reassuring remarks could be enough to push for an upside breakout.
But even though policymakers decided to keep interest rates and asset purchases unchanged for now, they kept the door open for further easing measures in case the Brexit does wreak a lot of havoc in the U.K. economy. The following day, U.K. Chancellor Hammond mentioned that the U.K. risks losing access to the single European market if it pushes for the immigration restrictions that pro-Brexit voters have lobbied for.
These remarks actually spurred a bigger reaction from GBP/CAD, causing it to make a sharp break below the short-term rising trend line. I decided to put on a small short position at market in case the pair barely looks back from its dive, but I’m also eyeing a pullback entry around the 1.7300-1.7400 area.
The Loonie could have its fair share of big moves this week as OPEC leaders are having a quick pow-wow in Algiers. Some energy ministers have already welcomed the idea of capping production and if they do agree on something this week, crude oil and the positively-correlated Loonie could see strong gains. If not, GBP/CAD might still pop up to test the broken trend line or 1.7500 range resistance.
I set my stop past the long-term range resistance and I’ll be aiming for the bottom of the range as my profit target. This should give me a 1:1 return-on-risk for my initial position, which could be improved if my second entry order gets triggered. Here’s what I have:
Short GBP/CAD at 1.7175 and at 1.7375 (0.25% risk each), stop loss at 1.7625, profit target at 1.6725.
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See also: Q2 2016 Trading Performance Review