Closing A Short EUR/GBP Trade (Profitably)

Hello, Friends. On August 15, a post here suggested establishing short positions in EUR/GBP around the spot level at the time, 0.8025, with a stop above 0.8050 and an initial profit target of 0.7955. Since that was posted, the high in the pair has been 0.8027,  and the profit objective was achieved earlier today, for a gain of roughly 70 pips. Normally, the next profit objective would be the previous low, in this case 0.7873. That would represent a further gain of roughly 70 pips if and when it is reached.

Frankly, I don’t see it as being worth the bother at present. There is a lot going on in the world, and Todd and Doc have great trade suggestions in stocks, futures and options virtually every day. Given the opportunities available in those asset classes and their derivatives, it’s tough to be enthusiastic about trading currencies with realized (historical) vol levels of 4 or 5% (EUR/GBP is running around 4%), and daily ranges of around 35 pips. I think that this trade will continue to work; the question then becomes “Is this the best use to which I can put my trading capital?”

For those leveraged to the maximum of around 50:1, a trade like this might still make sense, but it seems to me that the odds of being stopped out by noise – as almost occurred in this trade on a couple of occasions – are probably unacceptably high. I spent virtually my entire career on bank currency desks, and this is about the worst stretch of subdued price action that I can recall. Given the changes occurring in the industry, some of the decline in volatility may be more or less permanent, but I suspect that the energy level, and ranges, will expand in the not too distant future. I’ll continue to look for potential setups in currency pairs; in the meantime, there are plenty of other fish jumping.

As always, very best of luck!