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Trade Closed: 2010-07-12 00:02

PoD Chart

So much for my trade idea. EURGBP, after breaking out of its descending channel, was slowly bought up by the bulls. Needless to say, my trade stopped out eventually. Boo!

It looks like the slur of bad economic data from UK (current account balance, industrial production, manufacturing production, producer price index)) and negative debt rating comments from S&P was just way too much for the pound. To compound to this, while the pound has taken hits across the board, the euro has remained as resilient as Spanish goalkeeper Iker Casillas.

Stopped out at .8410 for -140 pips/ -1.0% loss

So my account takes a hit, but no biggie since I followed my risk management rules. Time to bounce back this week and find another trade setup!

Trade Idea: 2010-07-06 00:02

PoD Chart

Even with England’s soccer team getting booted out and with both Germany and Spain still in the tournament, I don’t think this will carry on in the forex markets. I’ve got a sweet short setup on EURGBP in mind for this week’s trade!

Looking at the chart above, we can see that EURGBP has been stuck in a descending channel as of late. I think with this being just the third test of the resistance and with stochastics showing overbought conditions, we could see the pair continue to range lower as we enter the summer season. Even before the pair formed a channel, price has been forming lower highs, indicating to me that the overall trend is towards the downside.

Fundamentally speaking, even with EURUSD gaining some momentum as of late, I find the euro less attractive to both its European counterparts. There still exists the threat of debt contagion fears. Any bad news here or there could trigger wide spread euro selling. In fact, perhaps last week’s run by the euro was simply a case of short covering – after all, it was the half-year end, so traders could have been locking in those profits to grab some nice bonuses.

The major events to look out for this week are the interest rate decisions from the Bank of England and European Central Bank later this week. Now, I highly doubt we’ll see any rate hikes from either central bank, but there is the chance of some hawkish comments made by a certain BOE official. Of course, I am talking about Mr. Andrew Sentance. Mr. Sentance thrust his name onto centerstage a few weeks back when he decided to a Carlos Teves (in other words, he tried to take on a me-against-the-world mentality).

In this case, he dissented from the rest of his BOE buddies and actually voted to hike interest rates! If he keeps insisting that that higher rates are warranted, or if anyone decides to join his cause, it would most likely lead another round of pound buying.

I decided to short at market at .8270. It’s tested the resistance line a couple of times now – it looks like it’s holding! I’ve put a relatively wide stop on this trade, putting it past the previous swing high. If price were to test above .8400, it would represent a higher high, which would invalidate my trade idea. Now, I’ll be targeting just above the previous low, putting my first take profit point at .8080. I think by the time price reaches this level, it would be near the middle of the channel, so we may find some support. I’ll ultimately be targeting the .8000 handle, which might prove to be a strong psychological support area.

Here’s the gameplan :

Short at market .8270, stop loss at .8410, take profit at .8080 and .8000.

I got a nice win last week amidst all the chaos. Hopefully, I can follow up last week’s goal with another one this week!

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