With two major events coming for both the euro and Sterling, I’ve decided to close out my short position to lock in a profit and avoid event risk. Here’s a quick review!
After rolling down my stop on my short EUR/GBP position from 0.8960 to 0.8520 last week, the market hasn’t really gone much of anywhere despite the continued string of U.K. election polling data showing the Conservatives are likely to win the general elections, which is seen as a bullish Sterling influence. The pair has barely moved 20 pips since my last update, but at least it was in my favor rather than against.
Now, being only a couple of days away from not only the U.K. general election, but also the latest monetary policy statement from the European Central Bank, I’ve decided to reduce my risk further by closing down my open EUR/GBP short manually at market (0.8407)
Total: +228 pips / +0.17% on 0.25% max risk
Again, while it is a very small profit taken, the return-on-risk was not bad, and I think it was a good idea to close it out on the possibility that even if the Conservative Party does come out as the victor, since it has been expected, we could see a Sterling sell off in reaction to the event.
As for the ECB meeting, even though there have been signs of economic stabilization in the Euro area, overall, the data still suggests softness in the economy. This means it is likely the ECB isn’t going to signal an end to stimulative policies any time soon. And again, since this is pretty much expected, the euro could actually rally after the ECB statement on short covering/profit taking if this scenario plays out.
So, it makes sense to close given the possibility of a bounce in EUR/GBP in reaction to Thursday’s events. And if it does, I’ve already taken the trade so I’ll feel good about that, and I could even possibly short again at a better price if the story still makes sense. If the market spikes lower after the events, then I’ll look for another fresh short entry to play the momentum, hopefully this time with a much bigger position than what I had on this most recent EUR/GBP idea.
What do you guys think? Good adjustment to close the position down or should I have kept the trade on into this week’s top tier events. Let me know in the comments section below!
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