Short GBPUSD again?
Selling the GBPUSD was a very good trade in 2018, we went short in September and didn't close until December. It delivered a 3:1 risk reward for a 27% gain in equity which was really nice. In this blog post I am thinking out loud about takling the trade again before the Brexit vote happens in the commons later today.
As you can see from the chart we have a reasonabe technical set up, the pair seems to have been rejected once a gain from the trend line that has defined the pair since our September trade and the (A) -(B)- (C) wave pattern we are forecasting is along way from complete, The final target is 1.15 breaking the 1984/2016 lows
The pair is a long way from our usual green box buying area but we don't like that area, the price for the box was dictated by the recent spike lower and the pair would have to break the trend line to get there. We prefer a short at these levels and a stop above the trendline (thats if we take the trade.
The economics in the UK dont look pound favourable, the Bank of England forecast two rate rises this year but I dont think anybody is buying that, the economy is clearly slowing as the retail market sufferes and brexit worries cause a lack of investment and companies re locating out of the UK. Inflation has been high in the UK above target, mainly caused by the depreciation in the pound but recent events are causing it to slow. The UK government put a price cap on energy and oil values are down. Pressure on the high street and compettion in the supermarket arena are going to cause inflation to dip below target in the near future. That will reduce pressure on wages and start a downward inflation spiral.
Its that damn brexit
If it wasn't for the brexit issue I would take this trade, but the volatility of the pair and the risk of large movement makes it really difficult to trade the GBP, the vote is a nightmare fo the Uk. The government will lose by a siugnificant margin but what then? A significant Brexit delay and possible second referendum will be pound positive for a while but it is only putting off the inevitable. The damage is done, the GBP is going down but can we get the necessary risk reward to trade it. At this moment we are not sure and sat watching the price action wishing we were not so conservative!
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