Trade Update: Managing GBP/CAD Risk

Last updated 9/2/2010 4:18 PM EST (GMT -5) 2 Comments

FX360 Technical Analyst Staff

Technical Analyst, GFT

Yesterday’s GBP/CAD buy trade ( “ GBP/CAD Uptrend to Resume at 1.6167” ) triggered early this morning, and the pair has since bounced back to the upside.  Although current rates have yet to reach the initial 1.6246 risk management level outlined in the original trade idea, the slightly extended CD leg requires a recalculation of this level in order for it to remain just below the 38.2% retracement of the actual CD leg. As a result, this level sits at 1.6238 exactly where the current intraday high has been established prompting the current stop adjustment to breakeven. A drop below point D at this point would point to further downside momentum to the next level of pattern completion near 1.6070 (characterized by the 161.8% ABCD extension and the 78.6% XA retracement). 

There are number of major data releases in the coming days, including tomorrow’s Halifax HPI and Services PMI out of the U.K.  These fundamental risks to the GBP make moving stops to breakeven (1.6167) at current levels prudent. If tomorrow’s Halifax HPI report surprises to the upside, there would be cause to look for a potential extended target as far as  1.64580, just below a potential retest of the high at point A. However, given today’s disappointing Nationwide HPI report, there may be an increased probability of the Halifax HPI missing expectations.  This development would clearly be negative for the U.K. economy and, by extension, our long GBP/CAD trade.  

If, on the other hand, the Halifax number beats (or perhaps just meets) expectations, a relief rally in the GBP is more likely, potentially boding well for the open GBP/CAD trade.  Further fundamental analysis of the U.K. economy may point to additional downside risks to the GBP as Boris Schlossberg, GFT’s Director of Currency Research stated this morning ( “Euro Holds Gains – Will ECB Hint At Tightening” ), “We continue to believe that the UK economy remains very vulnerable to the triple threat of declining house asset prices, weaker capital markets and the onset of fiscal austerity measures as we enter the fall season.”  As a result, more conservative traders may look to take profits and run whereas more aggressive traders may look to move stops to 1.6115 just below the current bottom in order to allow for a potential retest of pattern completion. 

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  • 2hr Chart - BEFORE (yesterday)
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  • 2hr Chart - CURRENT

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Comments (2)

NeoFX

September 02, 2010 at 04:33 PM ET

that was a heck of a trade call!!!

usaforex1

September 08, 2010 at 02:05 AM ET

i like this good post.
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http://onlineforexusa.com

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