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What a time for that trend line on GBP/USD to break down! Just when I had bought the pair in hopes of getting a piece of its uptrend, it decides to drop like a lead brick! Phooey!

It seems the euro zone’s fiscal problems have spilled over to the U.K. Apparently, many U.K. banks have large holdings in Spanish and Irish banks, which makes them exposed to any risks coming from those two countries.

GBP/USD 1-hour Chart

In fact, after Ireland’s credit rating was downgraded, the BOE estimated that U.K. banks will be forced to write down over 4 billion GBP worth of loans. Ouchies!

To make matters worse, the U.K. is also battling problems on its own territory. I was counting on last week’s employment and retail sales figures to give GBP/USD a boost, but instead, they dragged it down even further! The unemployment rate unexpectedly shot up from 7.7% to 7.9%, and retail sales only grew 0.3%.

Bah humbug! It was a sound technical setup, so I’m not gonna let this loss get to me… At least not while Zac Efron and Ryan Reynolds are back in the market!

Trade Idea: 2010-12-14 23:33

GBP/USD 1-hour Chart

With news of Zac Efron and Ryan Reynolds being single and probably ready to mingle, you betcha I’m having a great week! Hmmm, I wonder if going long on GBP/USD will keep the good vibes rollin’…

I’m bullish on the pound primarily because of the very positive November CPI report. It showed that prices rose by 0.4%, hiking up the annual reading to 6-month high! A possible rate hike soon?!?

I know that hoping for a rate hike from the Bank of England (BOE) in January is as unlikely as me becoming the future Mrs. Efron or the new Mrs. Ryan Reynolds, but at least high inflation a very good reason for the BOE to NOT to go ahead with quantitative easing, which some are speculating is just around the corner for the U.K.

I’m keeping my fingers crossed for the employment report due later and the retail sales report on tap tomorrow to reel me in some pips. From what I’ve read around the web, there’s a chance that we could be in for a surprise with the stats on the labor market given that the Manufacturing PMI showed that the sector is enjoying job growth.

It also looks like a three inside-up candlestick pattern has formed right at the bottom of the channel of Cable. Does this mean that the move down is finally over and the bulls are ready to take control again?

With the Stochastic showing that conditions are oversold, I think we could see another move up to the top of the channel. I’m not the kind of person who ignores a great, if not perfect, buy signal, so I’m pulling the trigger!

Of course, what’s a good trade without a stop? For this trade, I have placed my stop below 1.5700. If the pair manages to close below this, then that means my trade idea is invalidated.

Here are the details of my trade:

Long GBP/USD at market (1.5770), pt at 1.5900, sl at 1.5670, risking 1% of my account.

Hopefully, I am able to hit my profit target this time around.

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