If you’re like me and today’s super weak U.K. PMI release got you looking at opportunities to short the pound, then you’re gonna love this trend trade I’ve spotted on GBP/USD!
In case you were too busy binge-watching the latest season of The Crown, then you should know that the U.K. just printed seriously disappointing manufacturing and services PMIs for the month of November.
Turned out, “global economic uncertainty” is limiting new work in the manufacturing sector, while “domestic political upheaval” is causing delayed decision-making and cautious spending in both the manufacturing and services sectors.
IHS Markit commented that today’s numbers represent “the survey’s worst spell since the recession of 2008-9,” and that (emphasis mine):
“The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter, and also pushes the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy.”
Today’s numbers got a lot of traders thinking that a clear election victory for Boris Johnson’s team and a Brexit deal might NOT be enough to keep the economy from plunging into a recession. Yikes!
This would then prompt the BOE to make stimulus rain after more than a year of waiting in the sidelines. Double yikes!
If you’re looking to short the pound, then you might want to look at Cable’s WEEKLY time frame.
For one thing, price is consolidating in a 100ish-pip range that happens to line up with a channel resistance area. Not only that, but there’s also a bearish divergence on the chart!I know that there’s still a lot of pound bulls out there despite today’s reports, so I’ll be careful in shorting this one.
I can wait for the pair to break below its current consolidation and maybe gain some momentum before I enter a short trade. I can even wait for another retest of the trend line in case reactions to the release of the Labour Party’s manifesto leads to higher GBP/USD prices.
Either way, I’m looking to place my stops just above 1.3100 and aim for the 1.2600 and 1.2250 previous lows.
What do you think? Will GBP/USD extend its longer-term downtrend? Or will we see an upside breakout in the next couple of days?
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