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Trade Closed: 2010-07-18 22:10

PoD Chart

As it turns out, the pair had actually formed a descending channel. Given how strong the pound was throughout the week, I thought we would see this pair jump up to end the week. Unfortunately for me, things didn’t go quite as planned.

First, I believe there could have been some profit taking that took place to end the week. I looked at both GBPJPY and GBPUSD and saw that after three solid days of gains, both took some massive hits. Traders locking up some profits perhaps?

Secondly, EURGBP popped up and set new highs. The fact that the pound fell against the euro, dollar and yen indicates to me that there was some pound weakness across the board on Friday.

Secondly, stocks tumbled on Friday and in turn, we saw the yen rise against all other major currencies… Hmmm… this sounds like risk aversion if you ask me

So by now I think you can put two and two together. Pound weakness coupled with yen strength led to a swift break to the downside in GBJPY. After opening above 135.00, Guppy dropped a ridonculous 300 pips and tested the 132.00 handle. Ouch!

Closed at 132.30 – -160 pips / -1.0%

Bahh, got chopped up again. I need to make some adjustments and I may have to stick to some more shorter term trades for now. The markets are acting up again, so I’ll be interested to see whether risk aversion will come into play this week.

Trade Idea: 2010-07-14 23:30

PoD Chart

After hitting lows earlier this year against the dollar and yen, the pound has been pretty resilient. It seems that the markets have reacted positively to all the austerity plans that the British government plans to implement.

It also helps that it seems that risk appetite is back in play. This of course, benefits higher yielding currencies like the pound. After the recent slew of good data and yesterday’s rise in the pound, I think we could see this continue throughout the end of this week. There isn’t any major data coming out from the UK today, but I wanna keep an eye out for BOE member David Miles’ speech tonight at 10:00 am GMT. I think there’s a slight chance he might just join Andrew Sentance’s one-man club.

Take note, so far, Sentance has been the only BOE member who has explicitly called for tightening measures. If any other member were to make a similar statement, it may just cause a flurry in the markets.

I am eyeing the intersection of the 61.8% Fibonacci retracement level, the week open price, and the rising trend line as the potential entry area for my long – my Kill Zone. With stochastics nearing oversold territory, we just might see price pop higher once it dips.

So, based on the current market environment and technical, I’m going to set a buy order at 133.90. To give my trade room to breathe, I will set my stop approximately equal to the pair’s average true range of 160. I will ultimately aim for new highs, but I will take half of my position at 135.50, which is just a couple of pips below the most recent high.

Here’s my game plan:

Long GBPJPY 133.90, pt1 at 135.50, pt2 at 138.00, stop loss at 132.30. As always, I’ll risk 1% of my account on this trade.

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