Getting in ahead of the London session; short GBPUSD and long USDJPY
Posted by The Lonely Trader on April 22, 2008
GBPUSD’s rally came to an end yesterday and the usually bounce at deep retracement levels has not materialized. It appears the market did not buy into the recent mortgage rescue plan and there is talk that the BoE may begin easing. On the back of this news, yesterday’s sell-off continued into Asia and is currently testing key support at 1.9750. A break of this level opens the door to 1.9550. I’ve reversed the previous trade, entering at 1.9770, and targeting 1.9650 and below. I’ll be especially careful around 1.9700, lowering stops to breakeven at that point, and perhaps taking partial profits. The BoE rate decision coming tomorrow should provide pressure on the pair today.
The BoJ report yesterday was very bearish for the JPY. The economy, according to the Governor, is slowing under the impact of high energy and raw materials costs. Corporate activity is also anemic in eight of Japan’s nine economic regions. The BoJ cannot cut rates much further under the current circumstances. I expect a pop up to test recent highs, before a moving back down, so I’m re-establishing a long here. This is a daytrade, looking to take full profits just shy of 66% of the 30-day average daily range.
Update 0920 GMT: EURUSD looks set to push through a four day range, but all-time highs must be broken. To some extent I expect GBPUSD to trace with EURUSD. GBPUSD resistance above current price and the current tone of EURGBP have me thinking that EUR will outstrip GBP in the near term, and so I will stay with the GBP short play. Worst case scenario is that I leg out of the GBP as EUR retraces. As usual, the late Asian reversal has provided some momentum for GBP longs, but I expect a rejection of this move as offers above weigh on the pair and may scale in above 1.9850. The latest spike in WTI to 117.21 bid and the rise in Gold from late Asian trading are putting pressure on the USD across the board — with the exception of USDCAD, which has been chopping around in the 1.0090 – 1.0050 hourly range. EURJPY looks set to test yesterday’s highs. A failure below the 164.90/85 area would change my outlook on USDJPY.
Update 1121 GMT: Scaling into the GBPUSD short just below the handle at 19879. Risk on this trade idea is now 0.4%K. EURGBP bids should come into focus over the next couple of sessions. Holding EURUSD and USDJPY longs. EURJPY is looking toppish, so I expect some stalling in EURUSD and a small rise in USDJPY in the coming session. If EURJPY breaks, I will have to reconsider the USDJPY long. I’ve also entered an AUDUSD short — more on that later when I get some time to explain.
Developing….
Related posts:
Long GBPUSD on a bounce, resumption of short term momentum
Long USDJPY on a bounce, EURJPY breakout
TLT
