Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
Sentiment suggests that bearish trades can offer bigger potential for trading GBPUSD in the near-term than bullish ones. The longer-term outlook is a different matter and will depend mostly on the EU-UK trade negotiations that will take place over the coming months.
However, in the short-term, markets are focusing on the weak UK economy and the prospects for a rate cut from the Bank of England (they meet tomorrow).
Considering that GBPUSD is trading in a triangle formation (that we also discuss here in our weekly analysis), there is good potential for bearish trading opportunities shall GBPUSD break this triangle to the downside during or after the Bank of England
meeting.
Risks to the downside for GBPUSD
Below we describe what is likely to be a potential trade opportunity of short-term nature. Going into the BOE meeting, the risks for GBPUSD are on the downside because many traders are looking for the BOE to be overly dovish and even cut rates in response to the weakness in the UK economy.
Given that GBPUSD is already trading at elevated levels (after the shart rise from September to December), there is scope for sentiment to turn even more bearish and take GBPUSD down to the 1.28 - 1.27 support area.
There are two primary scenarios for the Bank of England meeting tomorrow:
- BOE cuts rates by 25% - GBPUSD likely makes a bearish breakout of the triangle
- BOE holds rates unchanged - GBPUSD likely pops higher, but this reaction will probably be short-lived with such a bullish move likely to be reversed not long after
So, even if the BOE holds rates unchanged, it’s likely that they will send a strong dovish message, and several members of the MPC will vote for a rate cut. So, on this alone, traders may sell GBPUSD, which could result in breaking of the key 1.30 support. In such a scneario, technical-driven price action can take GBPUSD to the next support areas lower which are at 1.28 and
1.27.
As described above, we are not looking to trade GBPUSD from the long side on this BOE event, even in case of a bullish reaction.
Why the 1.27 - 1.28 area is chosen as the target?
As can be seen on the chart below, the 1.27 - 1.28 area is an important support for several reasons, but mainly because of the 100-day and 200-day moving averages and the prior lows from November, all of which stand in this area.
Also, 1.28 and 1.27 are support zones independently, as each moving average stands near these levels. Additionally, these levels have been support for GBPUSD in the past too.
- Look to enter on a convincing bearish breakout of the triangle’s support trendline (standing at the 1.30 zone). Preferably that occurs on a strong dovish message by the BOE.
Stop loss:
-
Look to place a relatively tight stop above the breakout point (1.30).
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The price may return to retest this broken support, so be sure to allow some breathing room for such a possible scenario. Additionally, keep in mind that in this scenario, there may be an opportunity for a “safer” sell entry.
Targets:
- 1st - 1.28 area
- 2nd - 1.27 area
Note: If GBPUSD doesn’t fall (i.e., doesn’t break the triangle to the bearish side) after the BOE meeting, this trade could be canceled.
The Fed also meets today - no changes are expected from them, and hence no big moves in currencies are likely. However, the main focus will be on Powell’s press conference where the Chairman is expected to clarify the Fed’s plans on their recent repo purchases (which many are calling silent QE, considering that the Fed’s balance sheet expanded notably since they started purchasing short-term US bonds in
September).
Nonetheless, the overall bullish USD sentiment persists and is unlikely to be shaken this week. So this is another factor that should help to pull GBPUSD down in the near-term.
Elsewhere, the coronavirus outbreak is front and center - onsetting risk-averse moves in markets. This was also the primary reason for why our short EURAUD trade from last week was stopped out.
Trade signals from the past week
- January 22, 2020 – Short USDJPY from 109.90 (in progress, currently around +80 pips); trade idea sent on January 15
- January 22, 2020 – Short EURAUD from 1.6190, stop hit at 1.6230 = -40 pips (AUD suffered from risk aversion due to fast coronavirus outbreak); trade idea sent on January 22
TOTAL: -40 pips in the past week
TOTAL: +2450 pips profit since October 1, 2018
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Thank you!
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Any opinions, news, research, predictions, analyses, prices or other information contained in this newsletter is provided as general market commentary and does not constitute investment advice. FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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