Some unexpectedly good news from the UK economy – good news from that quarter is generally unexpected in these troubled times – had the corollary effect of catching a number of traders and investors uncomfortably short of Cable (GBP/USD). When people urgently need to cover shorts, liquidity tends to evaporate, and you get daily bars that show (for example) a range of 1.5260 to 1.5468. For the record, the UK economy grew by 0.3% in the first quarter, better than the consensus 0.1% figure, reducing fears of a “triple dip” recession.
This short covering rally – and I suspect that’s all it is – has taken GBP/USD back to levels where a short entry is possible, that is, not terribly risky. An entry around 1.5450 with a stop above 1.5480 and a profit objective of 1.5225 seems about right. A move down to 1.5400 would certainly see me moving my stop to no worse than break even, but the potential for the trade seems considerably larger than that.
When trading Cable, it’s always useful to keep an eye on EUR/GBP, which drives a lot of the action in Sterling (UK trade with the continent is substantial). On the daily chart, it has pulled back to support around .8450, and market chatter indicates the presence of sizable bids from corporate hedgers, which should help to keep Cable from moving too much higher. As EUR/GBP moves higher, GBP/USD will tend to push lower, a good thing for those short the latter pair.
Best of luck!
P.S. Quick update; GBP/USD came dangerously close to my stop level (1.5487; the high on my platform is showing as 1.5479), as EUR/GBP, although in an area that would be expected to provide support, has been getting shellacked (technical term). We’ll see how it goes; these pairs can leave people skittish, and if I’m wrong, well, that’s the case, and it certainly won’t be the first time.
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