We are awed by the trading possibilities of the GBP/USD daily chart at the moment. We see amazing opportunities to make money long or short depending how the market breaks.
GBP/USD Daily Since Jan
Cable hit the highest since May on Tuesday but it only exceeded the prior high by one pip before slipping back below 1.6450. The area around 1.6475 has now become a critical inflection point. We see a minor bias higher because the break lower after the first two tries at 1.6474 was rejected so aggressively. What makes us hesitant to buy is the lack of follow-thru above 1.6475 on the break.
If cable does break above 1.6475 we don’t expect 1.6547 to offer much resistance. Instead, we anticipate a straightforward rally to 1.6747 and a likely test of 1.7000.
We are in no rush to jump in here. We may see a slide all the way down to 1.6325 before we get the conditions to rally. We will buy on a break above 1.6500.
Alternatively, if GBP/USD falls below 1.6300, we will sell on expectations of a move back to 1.60, or lower.
In either case, we expect to make upwards of 200 pips, so we can afford to be patient.
Our best trades over the past month have been on Australian fundamental data so we’re going to continue to stick with what works by buying AUD/USD ahead of the RBA decision at 1.0970. That’s 110 pips below the record high and we’re expecting AUD to blow through that level by the end of the week.
Entered USD/JPY short at 79.21 on July 4. Added July 21 at 78.49. Exited July 25 at 1.0627 (+120 pips) and July 27 (+42 pips). Result: +168 pips.
Entered with stop at 79.56 (35 pips). Greatest open loss: zero pips Greatest open gain: ~200 pips
I entered this trade on my expectations of problems with debt ceiling talks. On July 18, we were two weeks away from Aug. 2 deadline and expectations were for a deal to get done. The trade was based on my belief that nothing gets done easily or smoothly in Washington – a trade I’ll make every day of the week.
I shared my analysis in a post entitled: Debt Ceiling Hiccups to Come Sell USD/JPY. I wrote “Every story I’ve read late on Tuesday sounds like an agreement is just a matter of hammering out some details and drafting a bill. That is NEVER the case in US politics.”
What I should have known better: If I would have held the trade until July 28, I would have made 385 pips. The time from the 24 Jul to 28 Jul was frustrating because the news kept getting worse but USD/JPY wasn’t breaking down. There was lots of talk about barriers at 78.00 and 77.75. The news was progressing exactly as I expected but the market wasn’t acting how I expected so I cleared out. I suppose that was a wise move with the first half of the trade but with the second half, I should have just moved the stop lower instead of rushing out of the trade. A bit too cautious.
What I’m happy about: Many things. First, I was never holding a loss on a trade that earned 168 pips. Second, I didn’t jump into the trade on July 18. Instead I waited for a bounce. Even though the bounce was only 15 pips but it was a good start to a very disciplined trade. Third, I added to a winning trade. Fourth, I moved my stops down all the way.
Bonus thought: Look how oversold the RSI is, I almost want to buy USD/JPY expecting a bounce in the next 2-3 days on a debt ceiling deal.
It’s getting more difficult to avoid insults and hyperbole when describing the debt ceiling imbroglio. Surely you haven’t stumbled here looking for a recap of the day’s news so I’ll spare you the exercise save for a few thoughts. 1) On Tuesday it actually appeared that debt ceiling talks were moving backwards. 2) the real deadline is around Aug. 15. 3) We estimate the likelihood of a downgrade from S&P, Moody’s or Fitch at 70%. 4) the US looks increasingly to be on the precipice of another recession.
We remain short USD/JPY. We booked a 120 pip profit on the first leg of the trade and we’re up 51 pips on the second leg (entered at 78.46). We’re moving our stop down to our entry on the second leg, ensuring that we’re now trading with house money. We really like this position right now and if we were a tad more greedy we would be adding to it. It looks to us like there might be a sharp breakdown below 77.75.
Our latest trade is in AUD/USD which is hovering around 1.0950. It’s going higher. Four days ago on Twitter (July 21) with AUD/USD at 1.0830, we wrote “Beautiful breakout in AUD/USD. That will be testing 1.10.” We’ve climbed 120 pips since then and we’re sure that the record of 1.1012 will fall. The catalyst is going to be a high Q2 CPI reading (above 0.8% q/q on the trimmed mean) today. We are buying AUD/USD asap with the announcement coming on Twitter via @FX_Button. We will hold it until the news turns better on debt ceiling talks.