US Dollar Benefits From Weak Equities

Happy St Patrick’s Day. After a poor US close yesterday, equities are trying to tread water above their 21-day moving average supports. Currencies have lost their way with the Euro failing to gain a foothold above $1.30.

If I’d been playing football today I’d probably have scored a try. I’ve looked for trends in range-bound markets and scalped a quick profit just before the trend opened up!

It’s easy now to see that Sterling’s getting hammered, but for much of the morning when I was looking for clues it gyrated in a tight range; the same for the Euro.

One of the tools in my box for trading Sterling is the daily range. The average daily range over the past 20 days in GBP/USD is just over 200 pips, and I can usually rely on somewhere close to 170 pips in the 7 am to 1pm session. So when the currency is trading in a tight range I look for a breakout with a reasonable pip potential.

Today I got it wrong; the first trade was a sell bet on GBP/USD at $1.4043 as it broke to the downside. I closed out £3 at $1.4023 for £60, but stopped out the balance at break-even when momentum went out of the trade.

My next trade was a long bet on EUR/USD. To me, the chart looks supportive of further Euro strength, but it does need to set up an overnight base camp above $1.30. This trade failed because I over-complicated matters. If I had traded purely on the mechanics I’d have paid $1.2993 (10 pips above the break of the moving average) and taken at least partial profits somewhere between $1.3003 and $1.3013.

Instead I waited for the price to clear resistance, firstly at $1.30 and then at the day’s high of $1.3013. When a 5-minute candle confirmed the break I bought £5 at $1.3014 with a stop loss at $1.2985. A lack of follow through saw the price slowly drift back to the figure, then drop through my stop loss on its way to a lower world. That little adventure cost me £145.

Ironically, a quick opportunist scalping would have produced a decent return if I’d left it alone. For some reason Sterling spiked 30-pips in a flash, sending EUR/GBP down to £0.9220. I didn’t believe it would hold so jumped in and bought a fiver at £0.9225. Unfortunately I got a call from the missus so I set a limit order to close me out for a 10-pip profit; I reckoned this was a realistic short-term target while I was gone.

My order was filled, then the price carried on through previous resistance at £0.9250, leaving me flat, but with £50 in my back pocket.

So far I’ve resisted the urge to sell FTSE; this is going to be a tricky week, what with the Fed statement tomorrow and option expiry on Friday. For the moment I’m happy to watch from the touchline, pleased that I’m not nursing a short position from last week.

Happy Trading or Enjoy the Guinness

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